Borrow cheap, buy high? The determinants of leverage and pricing in buyouts

Ulf Axelson, Tim Jenkinson, Per Strömberg and Michael Weisbach

LSE Research Online Documents on Economics from London School of Economics and Political Science, LSE Library

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: private equity; capital structure; buyouts; credit cycles (search for similar items in EconPapers)
JEL-codes: G24 G32 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2012-03-15
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (6)

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http://eprints.lse.ac.uk/43088/ Open access version. (application/pdf)

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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