Private Equity and Financial Fragility During the Crisis

Abstract

Do private equity firms contribute to financial fragility during economic crises? We find that during the 2008 financial crisis, PE-backed companies increased investments relative to their peers, while also experiencing greater equity and debt inflows. The effects are stronger among financially constrained companies and those whose private equity investors had more resources at the onset of the crisis. PE-backed companies consequentially experienced higher asset growth and increased market share during the crisis.

When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education

“…1 See also Cao and Lerner (2009), Guo, Hotchkiss, and Song (2011), and Bernstein, Lerner, and Mezzanotti (2017). 2 Fund managers can increase value though operational changes because buyout contracts give them substantial control rights over the firm.…”

Private Equity Value Creation in Finance: Evidence from Life Insurance

“…We are also closely tied to a growing literature that points out that private equity firms' business models are not static over time (Strömberg 2007, Guo, Hotchkiss & Song 2011. Additionally, we supplement recent work by Bernstein, Lerner & Mezzanotti (2018). These authors study the impact of private equity investments during financial crises and find that private equity-backed firms were not more sensitive to the onset of the crisis.…”

Private equity buyouts, credit constraints, and firm exports

“…Previous research shows that PE firms have a positive impact on the performance of the acquired companies. This impact occurs through the easing of credit constraints of portfolio companies (Boucly et al, 2011;Davis et al, 2014;Amess et al, 2016;Bernstein and Sheen, 2016;Bernstein et al, 2019). Second, our study broadens the literature on firm-level engagement in international export markets.…”

“…The UK is an ideal setting for the empirical analysis for three main reasons. First, it is the largest and most active private equity market in Europe; in recent years it had the highest average annual deal value, and aggregate annual deal value relative to GDP (Bernstein et al, 2019). 2 Consistent with this, commercial data provider Pitchbook reports in its 2019 Annual European Private Equity Breakdown that the UK and Ireland account for 29% of European private equity deal value over the last 10 years, which is more than any other region in Europe.…”

“…A large literature shows that PE investors can add value to their portfolio companies in a range of different ways, including through improved governance and advising on recruitment, through various forms of operational engineering, by leveraging their network of potential customers, suppliers and industry advisors, and in some cases, by advising on and facilitating bolt-on acquisitions to their target companies (for surveys on how PE investors add value to their portfolio companies see Gompers et al, 2016;Bernstein et al, 2019). In addition, PE investors often have strong relationships with the banking industry (Ivashina and Kovner, 2011) and may help target firms better weather periods of crisis (Bernstein et al, 2019). As a result, there is ample evidence that private equity targets become more productive after being acquired, in both the UK (Harris et al, 2005;Amess, 2003) and in the US (Davis et al, 2014;Lerner et al, 2019).…”