Do private equity owners increase risk of financial distress and bankruptcy? |
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| Authors: | Tereza Tykvová Mariela Borell |
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| Institution: | 1. Fuqua School of Business, Duke University, Durham, NC 27708, USA;2. National Bureau of Economic Research, Cambridge, MA, USA;3. Fisher College of Business, The Ohio State University, Columbus, OH 43210, USA;1. Technical University Munich, Arcisstraße 21, 80333 Munich, Germany;2. Saïd Business School, University of Oxford, Park End Street, Oxford OX1 1HP, UK;1. Department of Business Administration, University of Namur, Belgium;2. CeReFiM, University of Namur, Belgium;3. CORE, UCL, Belgium;4. Department of Finance, HEC Paris, France;5. ECGI, 1 rue de la Liberation, 78351 Jouy-en-Josas, France;6. Department of Finance, Université Lille Nord de France — SKEMA Business School, France;1. Chief Strategist Division, Public Investment Fund, Riyadh, Saudi Arabia;2. Department of Finance, HEC Paris, Jouy-en-Josas, France;3. Department of Finance, Arizona State University, Tempe, Arizona, United States of America;4. Institute of Industrial Economics, Jinan University, Guangzhou, China |
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| Abstract: | In this study, we investigate financial distress risks of European companies around the buyout event in the period between 2000 and 2008. In addition, we analyze whether buyout companies go bankrupt more often than comparable non-buyout companies. Our results suggest that private equity investors select companies which are less financially distressed than comparable non-buyout companies and that the distress risk increases after the buyout. Despite this increase, private equity-backed companies do not suffer from higher bankruptcy rates than comparable non-buyout companies. In fact, when companies are backed by experienced private equity funds, their bankruptcy rates are even lower. These findings indicate that experienced investors are better able to manage distress risks than their inexperienced counterparts. |
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