Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/93589
Authors: 
Haddad, Valentin
Loualiche, Erik
Plosser, Matthew C.
Year of Publication: 
2013
Series/Report no.: 
Staff Report, Federal Reserve Bank of New York 606
Abstract: 
We argue that buyout waves form in response to fluctuations in aggregate discount rates. In our model, discount rates alter the present value of cash flow improvements and the illiquidity premium demanded by buyout investors. We confirm our predictions empirically. Overall deal activity varies positively with the risk premium and negatively with the risk-free rate, exhibiting heterogeneous effects across firms. Cross-sectionally, firms with high levels of systematic risk or idiosyncratic risk are less likely targets. We decompose variation in activity structurally between changes in the value of cash flow and the illiquidity premium. The positive correlation of the two explains the wave behavior of activity.
Subjects: 
buyouts
discount rates
illiquidity
governance
JEL: 
G11
G23
G34
Document Type: 
Working Paper

Files in This Item:
File
Size
516.36 kB





Items in EconStor are protected by copyright, with all rights reserved, unless otherwise indicated.