Do Private Equity Owners Increase Risk of Financial Distress and Bankruptcy

Journal of Corporate Finance, Volume 18, Issue 1, February 2012, Pages 138-150, ISSN 0929-1199.

Posted: 2 Oct 2013

See all articles by Tereza Tykvova

Tereza Tykvova

University of Hohenheim - Faculty of Business, Economics and Social Sciences

Mariela Borell

ZEW – Leibniz Centre for European Economic Research

Date Written: February 1, 2012

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.

Keywords: Private equity, Buyout, Financial distress, Bankruptcy

JEL Classification: G20, G24, G34

Suggested Citation

Tykvova, Tereza and Borell, Mariela, Do Private Equity Owners Increase Risk of Financial Distress and Bankruptcy (February 1, 2012). Journal of Corporate Finance, Volume 18, Issue 1, February 2012, Pages 138-150, ISSN 0929-1199., Available at SSRN: https://ssrn.com/abstract=2334073

Tereza Tykvova (Contact Author)

University of Hohenheim - Faculty of Business, Economics and Social Sciences

Germany

Mariela Borell

ZEW – Leibniz Centre for European Economic Research ( email )

P.O. Box 10 34 43
L 7,1
D-68034 Mannheim, 68034
Germany

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
1,029
PlumX Metrics