Leverage and Pricing in Buyouts: An Empirical Analysis

53 Pages Posted: 19 Feb 2009

See all articles by Ulf Axelson

Ulf Axelson

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

Per Strömberg

Swedish House of Finance; ECGI; CEPR

Tim Jenkinson

University of Oxford - Said Business School; European Corporate Governance Institute (ECGI)

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: February 15, 2009

Abstract

This paper provides an empirical analysis of the financial structure of large recent buyouts. We collect detailed information of the financings of 153 large buyouts (averaging over $1 billion in enterprise value). We document the manner in which these important transactions are financed. Buyout leverage is cross-sectionally unrelated to the leverage of matched public firms, and is largely driven by other factors than what explains leverage in public firms. In particular, the economy-wide cost of borrowing seems to drive leverage. Prices paid in buyouts are related to the prices observed for matched firms in the public market, but are also strongly affected by the economy-wide cost of borrowing. These results are consistent with a view in which the availability of financing impacts booms and busts in the private equity market.

Keywords: Private equity, capital structure, leveraged buyouts

JEL Classification: G24, G32, G34

Suggested Citation

Axelson, Ulf and Stromberg, Per and Jenkinson, Tim and Weisbach, Michael S., Leverage and Pricing in Buyouts: An Empirical Analysis (February 15, 2009). EFA 2009 Bergen Meetings Paper, Available at SSRN: https://ssrn.com/abstract=1344023 or http://dx.doi.org/10.2139/ssrn.1344023

Ulf Axelson

London School of Economics ( email )

United Kingdom

Swedish Institute for Financial Research (SIFR) ( email )

Drottninggatan 89
SE-113 59 Stockholm, SE-113 60
Sweden

Per Stromberg (Contact Author)

Swedish House of Finance ( email )

Drottninggatan 98
111 60 Stockholm
Sweden

ECGI ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://https://www.hhs.se/en/houseoffinance/about/people/people-container/per-stromberg/

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

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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

European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels
Belgium

Do you have negative results from your research you’d like to share?

Paper statistics

Downloads
1,520
Abstract Views
6,542
Rank
21,627
PlumX Metrics