Do Private Equity Investors Create Value? Evidence from the Hotel Industry

51 Pages Posted: 16 Dec 2020 Last revised: 22 Dec 2020

See all articles by Christophe Spaenjers

Christophe Spaenjers

HEC Paris - Finance Department

Eva Steiner

Penn State Smeal College of Business

Date Written: November 26, 2020

Abstract

We dissect possible mechanisms of private equity (PE) value creation by studying the U.S. hotel industry. We observe acquisitions, dispositions, and granular operating performance data for several thousand hotels owned by PE and non-PE investors over the past two decades. PE-owned hotels experience only limited operating efficiency gains, and no change in bottom-line profit measures on average. Nonetheless, PE investors earn above-average capital gains on their hotel real estate investments. They do so by acting as arbitrageurs, selling to counterparties with high valuations. Finally, PE investors’ returns to equity are boosted by their superior access to cheap financing.

Keywords: private equity, value creation, firm ownership, real estate investment

JEL Classification: G11, G24, G32, R33

Suggested Citation

Spaenjers, Christophe and Steiner, Eva Maria, Do Private Equity Investors Create Value? Evidence from the Hotel Industry (November 26, 2020). HEC Paris Research Paper No. FIN-2020-1410, Available at SSRN: https://ssrn.com/abstract=3738265 or http://dx.doi.org/10.2139/ssrn.3738265

Christophe Spaenjers (Contact Author)

HEC Paris - Finance Department ( email )

1 rue de la Liberation
Jouy-en-Josas Cedex, 78351
France

Eva Maria Steiner

Penn State Smeal College of Business ( email )

University Park, PA 16802
United States

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