Appendix A
Corporate Finance Theory: Application to Private Capital Markets
Until the first edition of this book appeared in 2004, private market players had only corporate finance theories to explain the behavior of private capital markets. They were left to assume that corporate finance theories explain and predict actions in private markets. This book demonstrates otherwise. Left unsaid by academics is that corporate finance theories explain and organize public capital markets but were never intended to explain nonpublic capital markets. Private markets must be explained using theories tailored to experience in those markets.
Private Capital Markets is a Lewis and Clark–type survey of the theories and methods of middle-market finance. It is concerned with the manner in which these concepts relate to each other, to larger bodies of knowledge, and to what extent they may be mutually exclusive or internally limited. It connects the theoretical with the practical but never loses sight of its primary use in serving as a road map. For example, there is a valuation methodology developed in the world of market value. While we all know the world exists, standard valuation methods have not developed tools to chart or capture it.
A premise of this book is that middle-market finance theory holistically describes behavior in the private middle market. Further, much like corporate finance theory, middle-market finance theory emanates from meta-financial theory. Exhibit A.1 graphically represents ...
