Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts

Tim Jenkinson, Michael Weisbach, Strömberg, Per and Ulf Axelson
Authors registered in the RePEc Author Service: Per Stromberg

No 8914, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Private equity funds pay particular attention to capital structure when executing leveraged buyouts, creating an interesting setting for examining capital structure theories. Using a large, detailed, international sample of buyouts from 1980-2008, we find that buyout leverage is unrelated to the cross-sectional factors -- suggested by traditional capital structure theories -- that drive public firm leverage. Instead, variation in economy-wide credit conditions is the main determinant of leverage in buyouts, while having little impact on public firms. Higher deal leverage is associated with higher transaction prices and lower buyout fund returns, suggesting that acquirers overpay when access to credit is easier.

Keywords: Capital structure; Credit cycles; Leveraged buyouts; Private equity (search for similar items in EconPapers)
JEL-codes: G24 G32 (search for similar items in EconPapers)
Date: 2012-03
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Related works:
Journal Article: Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts (2013)
Working Paper: Borrow cheap, buy high? The determinants of leverage and pricing in buyouts (2012)
Working Paper: Borrow cheap, buy high? The determinants of leverage and pricing in buyouts (2012)
Working Paper: Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts (2012)
Working Paper: Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts (2010)
Working Paper: Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts (2010)
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