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Private Equity, Buy-outs and Insolvency Risk

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  • Nick Wilson
  • Mike Wright

Abstract

Private Equity restructuring using debt has been criticised for increasing financial distress and bankruptcy especially following the financial crisis. We build a unique dataset comprising the population of over 9 million company-year observations and 153,000 insolvencies during 1995-2010. We compare the insolvency hazard of the spectrum of buyout types within the corporate population over time and investigate the risk profile of the companies pre-buyout. Controlling for size, age, sector and macro-economic conditions private-equity backed buyouts are no more prone to insolvency than non-buyouts or other types of management buyins. Moreover, leverage is not the characteristic that distinguishes failed buyouts from those surviving.
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  • Nick Wilson & Mike Wright, 2013. "Private Equity, Buy-outs and Insolvency Risk," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 40(7-8), pages 949-990, September.
    • Handle: RePEc:bla:jbfnac:v:40:y:2013:i:7-8:p:949-990
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    File URL: http://hdl.handle.net/10.1111/jbfa.2013.40.issue-7-8
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    Citations

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    Cited by:

    1. Michala, Dimitra, 2019. "Are private equity backed initial public offerings any different? Timing, information asymmetry and post-IPO survival," Journal of Corporate Finance, Elsevier, vol. 59(C), pages 31-47.
    2. Renneboog, Luc & Vansteenkiste, Cara, 2017. "Leveraged buyouts : Motives and sources of value," Other publications TiSEM 595dc51e-e516-42f5-a781-6, Tilburg University, School of Economics and Management.
    3. Paul Lavery & Marian-Eliza Spaliara, 2022. "Private equity buyouts & firm exporting during the global financial crisis," Working Papers 2022_09, Business School - Economics, University of Glasgow.
    4. Paul Lavery & John Tsoukalas & Nick Wilson, 2024. "Private equity financing & firm productivity," Working Papers 041, The Productivity Institute.
    5. Renneboog, Luc & Vansteenkiste, Cara, 2017. "Leveraged Buyouts: Motives and Sources of Value," Annals of Corporate Governance, now publishers, vol. 2(4), pages 291-389, June.
    6. Benjamin Hammer & Heiko Hinrichs & Bernhard Schwetzler, 2018. "Does culture affect the performance of private equity buyouts?," Journal of Business Economics, Springer, vol. 88(3), pages 393-469, May.
    7. Renneboog, Luc & Vansteenkiste, Cara, 2017. "Leveraged Buyouts : A Survey of the Literature," Discussion Paper 2017-015, Tilburg University, Center for Economic Research.
    8. Vladimiro Marini & Massimo Caratelli & Gian Paolo Stella & Ilaria Barbaraci, 2022. "Is corporate governance of private equity targets more effective for risk mitigation?," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 26(3), pages 781-811, September.
    9. Aurélie Sannajust & Alexander Groh, 2023. "Pioneering management buy-out and entrepreneurial finance research: Mike Wright’s research legacy," Small Business Economics, Springer, vol. 60(1), pages 1-35, January.

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    More about this item

    JEL classification:

    • D21 - Microeconomics - - Production and Organizations - - - Firm Behavior: Theory
    • C25 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Discrete Regression and Qualitative Choice Models; Discrete Regressors; Proportions; Probabilities
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G33 - Financial Economics - - Corporate Finance and Governance - - - Bankruptcy; Liquidation

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