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.
| Original language | English (US) |
|---|---|
| Pages (from-to) | 1309-1373 |
| Number of pages | 65 |
| Journal | Review of Financial Studies |
| Volume | 32 |
| Issue number | 4 |
| DOIs | |
| State | Published - Apr 1 2019 |
Funding
We thank the Harvard Business School’s Division of Research and the Private Capital Research Institute for financial support. We also thank seminar participants at Columbia, Duke, LBS, MIT, and Northwestern for helpful comments. We especially thank Efraim Benmelech, David Matsa, Sabrina Howell, Steve Kaplan, David Robinson, and Morten Sorensen. One of the authors – Josh Lerner - has advised institutional investors in private equity funds, private equity groups, and governments designing policies relevant to private equity. All errors and omissions are our own. Send correspondence to Shai Bernstein, Stanford Graduate School of Business, 655 Knight Way, Stanford, CA 94305; telephone: 650-725-7266. E-mail: [email protected].
ASJC Scopus subject areas
- Accounting
- Finance
- Economics and Econometrics