Capital Structure & Firm Outcomes: Evidence from Dividend Recapitalizations in Private Equity

Abhishek Bhardwaj, Abhinav Gupta and Sabrina T. Howell

No 33435, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We study the effect of a large increase in firm leverage. We isolate the independent, causal effect of debt using the setting of private equity-sponsored dividend recapitalizations, where companies take on debt to pay investor returns, and opportunistic responsiveness to credit supply permits a causal design. After accounting for positive selection, higher total debt (84% on average) dramatically increases the chance of financial distress (by 2.4 times the targeted firm mean), in line with Altman-Z calibrations. Dividend recapitalizations increase deal returns but reduce fund returns, possibly reflecting moral hazard. They also reduce employee wages and loan prices for pre-existing creditors.

JEL-codes: G23 G32 G33 G35 (search for similar items in EconPapers)
Date: 2025-01
New Economics Papers: this item is included in nep-cfn and nep-fmk
Note: CF LS PR
References: Add references at CitEc
Citations:

Downloads: (external link)
http://www.nber.org/papers/w33435.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html. Free access is also available to older working papers.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:nbr:nberwo:33435

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w33435
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().