Private Equity, Buy‐outs and Insolvency Risk. (21st October 2013)

• Record Type: Journal Article
• Authors: Wilson, Nick; Wright, Mike
• Is Part Of: Journal of business finance & accounting. Volume 40:Number 7/8(2013)
• Page Start: 949
• Page End: 990
• Publication Date: 2013-10-21
• Subjects: private equity -- management buy‐outs -- insolvency -- bankruptcy; Finance -- Periodicals; Accounting -- Periodicals; Business -- Periodicals; 658.15
• DOI: 10.1111/jbfa.12042
• Languages: English
• ISSNs: 0306-686X

Abstract

Abstract: Private equity restructuring using debt has been criticized for increasing financial distress and bankruptcy especially following the financial crisis. We build a unique dataset comprising the population of over 9 million firm‐year observations and 153, 000 insolvencies during the period 1995–2010. We compare the insolvency hazard of the spectrum of buy‐out types within the corporate population over time and investigate the risk profile of the companies pre‐buy‐out. Controlling for size, age, sector and macro‐economic conditions, private‐equity backed buy‐outs are no more prone to insolvency than non‐buy‐outs or other types of management buy‐ins. Moreover, leverage is not the characteristic that distinguishes failed buy‐outs from those surviving.