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

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

FMG Discussion Papers from Financial Markets Group

Abstract: Private equity sponsors pay special attention to designing capital structure, making buyouts an interesting setting for examining capital structure theories. In a detailed international sample of buyouts, we find that buyout leverage is unrelated to factors that drive public firm leverage, such as industry factors and other cross-sectional characteristics, contrary to what standard capital structure theories suggest. Instead, variation in economy-wide credit conditions is the main driver of leverage and pricing in buyouts, while having little impact on public firms. Higher deal leverage is associated with lower buyout fund returns, suggesting that acquirers overpay when access to credit is easier.

Date: 2012-01
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Related works:
Journal Article: Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts (2013) Downloads
Working Paper: Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts (2012) Downloads
Working Paper: Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts (2010) Downloads
Working Paper: Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts (2010) Downloads
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