The performance of private equity portfolio companies during the COVID-19 pandemic *
forthcoming at the Journal of Corporate Finance
Journal of Corporate Finance, volume 89, 2024 [10.1016/j.jcorpfin.2024.102641]
57 Pages Posted: 24 Dec 2022 Last revised: 10 Sep 2024
Date Written: July 25, 2024
Abstract
We study the performance of PE-backed companies during the COVID-19 pandemic. Our findings suggest that, on average, PE-backed firms were more resilient compared to closely matched industry peers during the pandemic. However, this outperformance is of a smaller magnitude than during the pre-pandemic non-crisis period, suggesting that the outperformance is driven by investor selection of target firms ex ante, rather than active support mechanisms. The outperformance during the pandemic is found to be insignificant among firms which were the most vulnerable at the onset of the pandemic, and firms in the most exposed industries. These more vulnerable firms appear to have been less active in obtaining additional financing during the pandemic, and consequently, suffered a significantly higher incidence of distress. However, non-PE-backed firms in distress had a higher incidence of liquidation, while PE-owned firms more often negotiated formally with creditors to continue trading. Our analysis shines light on the role of PE investors during a large, exogenous shock, and suggests that, in the case of the pandemic, their adept target selection may help to explain the outperformance more so than their actions to protect vulnerable firms in a crisis.
Keywords: Private equity buyouts, firm performance, COVID-19 pandemic. JEL Classification: G01, G23, G32, G34
JEL Classification: G01, G23, G32, G34
Suggested Citation: Suggested Citation