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Private Equity and Financial Fragility during the Crisis

Author

Listed:
  • Shai Bernstein
  • Josh Lerner
  • Filippo Mezzanotti

Abstract

Does private equity (PE) contribute to financial fragility during economic crises? The proliferation of poorly structured transactions during booms may increase the vulnerability of the economy to downturns. During the 2008 crisis, PE-backed companies decreased investments less than did their peers and experienced greater equity and debt inflows, higher asset growth, and increased market share. These effects are especially strong among financially constrained companies and those whose PE investors had more resources at the crisis onset. In a survey, PE firms report being active investors during the crisis and spending more time working with their portfolio companies.Received July 19, 2017; editorial decision March 7, 2018 by Editor Wei Jiang.

Suggested Citation

  • Shai Bernstein & Josh Lerner & Filippo Mezzanotti, 2019. "Private Equity and Financial Fragility during the Crisis," The Review of Financial Studies, Society for Financial Studies, vol. 32(4), pages 1309-1373.
    • Handle: RePEc:oup:rfinst:v:32:y:2019:i:4:p:1309-1373.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhy078
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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance

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