We examine the performance of 2,790 private equity (PE) funds incepted during 1979-2008 using Stochastic Discount Factors (SDFs) implied by the two leading consumption-based asset pricing models (CBAPMs) — external habit and long-run risks — as their assumptions appear consistent with...

How do private equity (PE) investors affect firms' borrowing constraints, debt structure, and leverage dynamics? In this paper, we examine this central question by analyzing a large and novel database of PE-backed, bank-reliant, small and middle market firms in the U.S. using administrative...

Private equity owned firms have more leverage, more intense compensation contracts, and higher productivity than comparable firms. We develop a theory of buyouts in oligopolistic markets that explains these facts. Private equity firms are more aggressive in inducing restructuring compared to...

We characterize when private equity funds have a competitive advantage over strategic buyers in acquiring a target firm. Private equity funds are more inclined to cut loss-making projects, thereby gaining an information advantage for understanding value creation with the target's remaining...

In this paper I test the proposition put forward by private equity players that they undertake “governance arbitrage”. This proposition suggests that public companies with weak governance are more likely to receive a buyout bid from a private equity (PE) firm.I find evidence that companies...

Leveraged buyouts allow for a separate identification of sponsor reputation and underlying firm quality and their effects on capital structure choices. In 616 U.S. LBOs for which we can reconstruct financing activity, we find that the average LBO issues an average of 1.16 additional debt...

This paper examines contracts and the costs of accessing private markets globally. Contract terms vary by fund region and type. European funds charge lower fees than US funds, but evidence linking regulation to fee compression is weak. Investors’ costs are estimated to be 5% to 26% of...

I study a model of blockholder short-termism, where each blockholder (e.g., activist shareholder) has a stake in a different firm and can sell before the impact of his actions on firm value is realized. I find that the existence of value-destroying blockholders can increase average firm value,...

Limited partners (LPs) of private equity funds commit to invest with extreme levels of illiquidity and significant uncertainty regarding the timing of capital flows. Secondary markets have emerged which alleviate some of the associated cost. This paper develops a subjective valuation model...

We develop a dynamic valuation model of private equity (PE) investments by solving the portfolio-choice problem for a risk-averse investor (LP), who invests in a PE fund, managed by a general partner (GP). Key features are illiquidity, leverage, GP value-adding skills (alpha), and compensation,...