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Do private equity owners increase risk of financial distress and bankruptcy?

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  • Tykvová, Tereza
  • Borell, Mariela

Abstract

In this study, we investigate financial distress risks of European companies around the buyout event in the period between 2000 and 2008. In addition, we analyze whether buyout companies go bankrupt more often than comparable non-buyout companies. Our results suggest that private equity investors select companies which are less financially distressed than comparable non-buyout companies and that the distress risk increases after the buyout. Despite this increase, private equity-backed companies do not suffer from higher bankruptcy rates than comparable non-buyout companies. In fact, when companies are backed by experienced private equity funds, their bankruptcy rates are even lower. These findings indicate that experienced investors are better able to manage distress risks than their inexperienced counterparts.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Corporate Finance.

Volume (Year): 18 (2012)
Issue (Month): 1 ()
Pages: 138-150

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Handle: RePEc:eee:corfin:v:18:y:2012:i:1:p:138-150

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Web page: http://www.elsevier.com/locate/jcorpfin

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Keywords: Private equity; Buyout; Financial distress; Bankruptcy;

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References

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Cited by:
  1. Scellato, Giuseppe & Ughetto, Elisa, 2013. "Real effects of private equity investments: Evidence from European buyouts," Journal of Business Research, Elsevier, vol. 66(12), pages 2642-2649.
  2. Elisa Luciano & Giovanna Nicodano, 2012. "Default risk in business groups," Carlo Alberto Notebooks 283, Collegio Carlo Alberto.
  3. Borell, Mariela & Heger, Diana, 2013. "Sources of value creation through private equity-backed mergers and acquisitions: The case of buy-and-build strategies," ZEW Discussion Papers 13-094, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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