Buyout Activity: The Impact of Aggregate Discount Rates

Valentin Haddad, Erik Loualiche and Matthew Plosser

No 22414, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Buyout booms form in response to declines in the aggregate risk premium. We document that the equity risk premium is the primary determinant of buyout activity rather than credit-specific conditions. We articulate a simple explanation for this phenomenon: a low risk premium increases the present value of performance gains and decreases the cost of holding an illiquid investment. A panel of U.S. buyouts confirms this view. The risk premium shapes changes in buyout characteristics over the cycle, including their riskiness, leverage, and performance. Our results underscore the importance of the risk premium in corporate finance decisions.

JEL-codes: G11 G23 G34 (search for similar items in EconPapers)
Date: 2016-07
Note: AP CF
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Published as VALENTIN HADDAD & ERIK LOUALICHE & MATTHEW PLOSSER, 2017. "Buyout Activity: The Impact of Aggregate Discount Rates," The Journal of Finance, vol 72(1), pages 371-414.

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Related works:
Journal Article: Buyout Activity: The Impact of Aggregate Discount Rates (2017)
Working Paper: Buyout activity: the impact of aggregate discount rates (2013)
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