While notable differences exist among countries and time periods, internal finance is the principal source of funds for the corporate sector in the main European economies. The importance of internal finance has been increasing through the mid 1990s, in coincidence with a slowdown in investment....

This paper suggests a solution to what has become known as the private equity premium puzzle (Moskowitz and Vissing-Jorgensen (2002)). We interpret occupational choice as a dynamic portfolio choice problem of a life-cycle investor facing a liquidity constraint and imperfect information about the...