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

57 Pages Posted: 1 Sep 2013 Last revised: 11 Aug 2016

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: August 10, 2016

Abstract

This paper uses corporate tax return data to study the motives for private equity (PE) buyouts of U.S. private firms between 1995 and 2009. In contrast with prior evidence that PE acquirers target public firms facing overinvestment problems, we find that PE acquirers target private firms facing underinvestment problems due to financing constraints. These firms tend to grow substantially post-buyout. We also find some evidence that PE buyers target industry laggards as well, and engineer operational turnarounds in these firms.

Keywords: Private Equity Buyouts, Capital Structure, Private Firms

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 (August 10, 2016). 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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