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Borrow cheap, buy high? The determinants of leverage and pricing in buyouts

Axelson, Ulf, Jenkinson, Tim, Strömberg, Per and Weisbach, Michael (2012) Borrow cheap, buy high? The determinants of leverage and pricing in buyouts. Financial Markets Group Discussion Papers (698). Financial Markets Group, The London School of Economics and Political Science, London, UK.

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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.

Item Type: Monograph (Discussion Paper)
Official URL:
Additional Information: © 2012 The Authors
Divisions: Finance
Subjects: H Social Sciences > HC Economic History and Conditions
H Social Sciences > HG Finance
JEL classification: G - Financial Economics > G2 - Financial Institutions and Services > G24 - Investment Banking; Venture Capital; Brokerage; Rating Agencies
G - Financial Economics > G3 - Corporate Finance and Governance > G32 - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure
Date Deposited: 26 Jun 2023 14:39
Last Modified: 16 Sep 2023 00:02

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