Do Private Equity Investors Create Value? Evidence from the Hotel Industry
51 Pages Posted: 16 Dec 2020 Last revised: 22 Dec 2020
Date Written: November 26, 2020
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
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