Abstract

http://ssrn.com/abstract=2034132
 
 

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Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts


Ulf Axelson


London School of Economics; Swedish Institute for Financial Research (SIFR)

Tim Jenkinson


University of Oxford - Said Business School; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)

Per Strömberg


Swedish House of Finance

Michael S. Weisbach


Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER)

March 2012

CEPR Discussion Paper No. DP8914

Abstract:     
Private equity funds pay particular attention to capital structure when executing leveraged buyouts, creating an interesting setting for examining capital structure theories. Using a large, detailed, international sample of buyouts from 1980-2008, we find that buyout leverage is unrelated to the cross-sectional factors -- suggested by traditional capital structure theories -- that drive public firm leverage. Instead, variation in economy-wide credit conditions is the main determinant of leverage in buyouts, while having little impact on public firms. Higher deal leverage is associated with higher transaction prices and lower buyout fund returns, suggesting that acquirers overpay when access to credit is easier.

Number of Pages in PDF File: 53

Keywords: capital structure, credit cycles, leveraged buyouts, Private equity

JEL Classification: G24, G32

working papers series


Date posted: April 4, 2012  

Suggested Citation

Axelson, Ulf and Jenkinson, Tim and Strömberg, Per and Weisbach, Michael S., Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts (March 2012). CEPR Discussion Paper No. DP8914. Available at SSRN: http://ssrn.com/abstract=2034132

Contact Information

Ulf Axelson (Contact Author)
London School of Economics ( email )
United Kingdom
Swedish Institute for Financial Research (SIFR) ( email )
Drottninggatan 89
SE-113 59 Stockholm, SE-113 60
Sweden
Tim Jenkinson
University of Oxford - Said Business School ( email )
Park End Street
Oxford, OX1 1HP
United Kingdom
+44 1865 288916 (Phone)
+44 1865 288831 (Fax)
HOME PAGE: http://www.sbs.oxford.edu/timjenkinson
Centre for Economic Policy Research (CEPR)
77 Bastwick Street
London, EC1V 3PZ
United Kingdom
European Corporate Governance Institute (ECGI)
c/o ECARES ULB CP 114
B-1050 Brussels
Belgium
HOME PAGE: http://www.ecgi.org
Per Stromberg
Swedish House of Finance ( email )
Drottninggatan 98
111 60 Stockholm
Sweden

Michael S. Weisbach
Ohio State University (OSU) - Department of Finance ( email )
2100 Neil Avenue
Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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