| This paper provides an empirical analysis of the financial structure of large buyouts. We collect detailed information on the financing of 1157 worldwide private equity deals from 1980 to 2008. Buyout leverage is cross-sectionally unrelated to the leverage of matched public firms, and is largely driven by factors other than what explains leverage in public firms. In particular, the economy-wide cost of borrowing is the main driver of both the quantity and the composition of debt in these buyouts. Credit conditions also have a strong effect on prices paid in buyouts, even after controlling for prices of equivalent public market companies. Finally, the use of high leverage in transactions negatively affects fund performance, controlling for fund vintage and other relevant characteristics. The results are consistent with the view that the availability of financing impacts booms and busts in the private equity market, and that agency problems between private equity funds and their investors can affect buyout capital structures. |
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Per Strömberg is the Director of the Institute for Financial Research (SIFR). Strömberg joined SIFR in 2004 as a Senior Research Fellow. He is also a Professor of Finance at the Stockholm School of Economics, and Adjunct Professor of Finance at the University of Chicago Graduate School of Business. He received his Ph.D. in Financial Economics from Carnegie Mellon University and holds an MBA (civilekonom) from the Stockholm School of Economics.
Dr Strömberg's research has primarily focused on the two areas of bankruptcy and private equity finance. His research has been awarded with two Brattle Group Prizes for best corporate finance paper published in the Journal of Finance in 2001 and 2009, and the 2007 Stuart Greenbaum Award for the best paper published in the Journal of Financial Intermediation. In 2006 he received the “Researcher of the Year” award (“Partnerprogrammets Forskarpris”) at the Stockholm School of Economics.
At the Stockholm School of Economics, Dr. Strömberg teaches the elective classes “Venture Capital and Private Equity” and “Mergers and Acquisitions.” Between 1997 and 2004, Dr Strömberg was a faculty member at the University of Chicago, where he taught the MBA case course in financial management as well as co-taught the PhD course in corporate finance. He still teaches corporate finance in the University of Chicago Booth School of Business’ international executive MBA programs, where he won best teacher awards in the European executive MBA program in 2004 and 2005, and was chosen as “Professor of the Year” by the Asia executive MBA class in 2006.
He is a faculty research fellow of the National Bureau of Economic Research (NBER), a research affiliate of the Center for Economic Policy Research (CEPR), and a research associate of the European Corporate Governance Institute (ECGI). He is also a scientific advisor to the Swedish Financial Supervision Authority (Finansinspektionen) and an independent board member of Conversus Capital, L.P.
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| Viorel Roscovan |
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is the joint research institute of Rotterdam School of Management, Erasmus University and the Erasmus School of Economics, Erasmus University Rotterdam.