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

Axelson, Ulf ORCID: 0000-0002-1265-2714, Jenkinson, Tim, Strömberg, Per and Weisbach, Michael S. (2012) Borrow cheap, buy high? The determinants of leverage and pricing in buyouts. CEPR Discussion Paper (8914). London School of Economics and Political Science, London, UK.

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Abstract

Private equity funds pay particular attention to capital structure when executing leveraged buyouts, creating an interesting setting for examining capital structure theories. Using a large, detailed, international sample of buyouts from 1980-2008, we find that buyout leverage is unrelated to the cross-sectional factors – suggested by traditional capital structure theories – that drive public firm leverage. Instead, variation in economy-wide credit conditions is the main determinant of leverage in buyouts, while having little impact on public firms. Higher deal leverage is associated with higher transaction prices and lower buyout fund returns, suggesting that acquirers overpay when access to credit is easier.

Item Type:	Monograph (Discussion Paper)
Official URL:	http://www.cepr.org
Additional Information:	© 2012 The Authors
Divisions:	Finance
Subjects:	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:	16 Apr 2012 10:43
Last Modified:	11 Dec 2024 19:07
URI:	http://eprints.lse.ac.uk/id/eprint/43088

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