The Motives for Private Equity Buyouts of Private Firms: Evidence from U.S. Corporate Tax Returns

48 Pages Posted: 1 Sep 2013 Last revised: 12 Jun 2020

See all articles by Jonathan B. Cohn

Jonathan B. Cohn

University of Texas at Austin

Edith S. Hotchkiss

Boston College - Carroll School of Management

Erin Towery

University of Georgia

Date Written: June 10, 2020

Abstract

This paper uses corporate tax return data to study private equity (PE) buyouts of private U.S. firms. PE firms disproportionately target two types of private companies – those with poor operating performance and those that have growth potential but are dependent on external financing and already highly levered. In contrast to studies of buyouts of public firms in the same time period, we find significant improvements in operating performance and rapid growth post-buyout. Overall, our evidence suggests two key rationales for PE buyouts of private firms in the U.S. - to engineer operational turnarounds and to alleviate underinvestment.

Keywords: Private Equity Buyouts, Private Firms, Financing Constraints, Capital Structure

JEL Classification: G34, G32, H25

Suggested Citation

Cohn, Jonathan B. and Hotchkiss, Edith S. and Towery, Erin, The Motives for Private Equity Buyouts of Private Firms: Evidence from U.S. Corporate Tax Returns (June 10, 2020). Available at SSRN: https://ssrn.com/abstract=2318916 or http://dx.doi.org/10.2139/ssrn.2318916

Jonathan B. Cohn (Contact Author)

University of Texas at Austin ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-6827 (Phone)

Edith S. Hotchkiss

Boston College - Carroll School of Management ( email )

140 Commonwealth Avenue
Department of Finance Fulton Hall, Room 330
Chestnut Hill, MA 02467
United States
617-552-3240 (Phone)
617-552-0431 (Fax)

Erin Towery

University of Georgia ( email )

Terry College of Business
Athens, GA 30602-6254
United States

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