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Title:Do private equity owners increase risk of financial distress and bankruptcy? PDF Logo
Authors:Tykvová, Tereza
Borell, Mariela
Issue Date:2011
Series/Report no.:ZEW Discussion Papers 11-076
Abstract:There is some controversy on the key sources of success in the private equity model and on how this business model affects the portfolio companies. 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 paper suggests that private equity investors select companies which are less financially distressed than comparable 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 non-buyout companies. In fact, when companies are backed by experienced private equity funds, their bankruptcy rates are even lower. Experienced investors seem to be better able to manage distress risks than their inexperienced counterparts.
Subjects:private equity
buyout
financial distress
bankruptcy
JEL:G20
G24
G34
Document Type:Working Paper
Appears in Collections:Publikationen von Forscherinnen und Forschern des ZEW
ZEW Discussion Papers

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