Do private equity-backed buyouts respond better to financial distress than PLCs?

Robert Cressy, Hisham Farag

    Research output: Chapter in Book/Report/Conference proceedingChapter

    Abstract

    The paper uses a new, hand-collected dataset of 93 private equity backed buyouts and 96 PLCs that became financially distressed over the period 1995-2008 to investigate empirically whether private equity owned companies (buyouts) in financial distress (Receivership/Administration) have better recovery rates for secured debt than their publicly owned (PLC) counterparts and, if so, why. We find that the recovery rates of buyouts (amount recovered in proportion to secured debt outstanding) are in fact about twice that of PLCs during this period. Administration, surprisingly, has no effect on debt recovery rates but seems significantly to reduce the time to recovery. A larger number of creditors which in theory should reduce recovery rates, again has no impact, nor does company size. Intriguingly, however, higher leverage consistently reduces the recovery rate as (we hypothesise) more leveraged buyouts need to have recourse to lower quality assets for security. Finally, the time in recovery is negatively related to the date of distress onset (later years have shorter durations) and to the size of the firm (a concave relationship).

    Original languageEnglish
    Title of host publicationEntrepreneurship, Finance, Governance and Ethics
    PublisherSpringer
    Pages49-73
    Number of pages25
    ISBN (Electronic)9789400738676
    ISBN (Print)9789400738669
    DOIs
    Publication statusPublished - 1 Jan 2013

    Bibliographical note

    Publisher Copyright:
    © Springer Science+Business Media Dordrecht. 2013.

    ASJC Scopus subject areas

    • Economics, Econometrics and Finance(all)
    • Business, Management and Accounting(all)

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