When the going gets tough: Private equity firms' role as agents and the resolution of financial distress in buyouts. (4th May 2022)

• Record Type: Journal Article
• Authors: Meuleman, Miguel; Wilson, Nick; Wright, Mike; Neckebrouck, Jeroen
• Is Part Of: Journal of small business management. Volume 60:Number 3(2022)
• Page Start: 513
• Page End: 540
• Publication Date: 2022-05-04
• Subjects: Private equity -- buyouts -- distress -- agency theory -- signaling theory; Small business -- Management -- Periodicals; 658.022
• DOI: 10.1080/00472778.2020.1717242
• Languages: English
• ISSNs: 0047-2778

Abstract

ABSTRACT: Previous research has focused on a private equity (PE) firm's role as principal in its relationship with an investee, but few studies have looked into their role as agents for their investors. We examine how a PE firm's relationship as agent for limited partners (LPs) and banks influences its incentives to resolve financial distress in the investee. We examine the effect of PE fundraising reputation, PE fundraising activity, and PE bank affiliation on the likelihood of a financially distressed buyout ending in bankruptcy. We build a unique data set of 338 distressed buyouts in the United Kingdom to test our hypotheses.