As private equity (PE) funds become increasingly important to the economy and to a growing set of investors, the debate intensifies on whether the industry requires more regulation and disclosure. We study the impact of a recent mandatory disclosure regarding misconduct by PE fund advisers (i.e., general partners, or GPs). We find that the disclosure of misconduct reduces GPs’ ability to raise future funds. Reputation concerns appear to lead investors (i.e., limited partners, or LPs)—both new and existing LPs—to avoid misconduct GPs. Public pension funds, large LPs, and LPs in Democratic states are most averse to GPs with misconduct. We also find some evidence of LPs’ economic concerns: misconduct is related to GP crash risk.
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