Home Categories About
argument top image
Is private equity good for the economy? Is private equity good for the economy?
Private equity leads to higher default rates and more bankruptcies and worse outcomes for customers and workers Private equity leads to higher default rates and more bankruptcies and worse outcomes for customers and workers
Private equity leads to more economic growth and imporovements in efficiency Private equity leads to more economic growth and imporovements in efficiency
Private equity may help investors in its funds, but at the expense of workers, customers and the economy Private equity may help investors in its funds, but at the expense of workers, customers and the economy
Private equity is a debt driven model Private equity is a debt driven model
Defaults for private equity (leveraged buyouts) can be 10x higher than for non-LBO firms Defaults for private equity (leveraged buyouts) can be 10x higher than for non-LBO firms
Private equity is behind most recent big retail bankruptcies Private equity is behind most recent big retail bankruptcies
Customer care deteriorates when private equity buys companies Customer care deteriorates when private equity buys companies
Most claims of growth by private equity are false Most claims of growth by private equity are false
Debate Mini Map

Is private equity good for the economy?
Back to question

Private equity leads to higher default rates and more bankruptcies and worse outcomes for customers and workers

(1 of 3)

Defaults for private equity (leveraged buyouts) can be 10x higher than for non-LBO firms

You do not need an MBA from Wharton to know that loading up companies with debt will lead to bankruptcy. Research shows that private equity funds acquire healthy firms and increase their probability of defaultby a factor of 10. They are the antithesis of conservative management.
< (2 of 5) Next argument >

The Argument

Recent studies show that default rates are 10 times higher for private equity companies. "Tracking a sample of 484 public to private LBOs for 10 years after going private, we find a bankruptcy rate of approximately 20%, an order of magnitude greater than the 2% bankruptcy rate for the control sample. Our analysis is robust to macro and industry shocks as potential driving forces behind bankruptcy. " https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3423290

Counter arguments

Premises

Rejecting the premises

Further Reading

Here is a very good study. Leveraged Buyouts and Financial Distress Brian Ayash, California State Polytechnic University, San Luis Obispo - Finance Area Mahdi Rastad, Orfalea College of Business, California State Polytechnic University https://papers.ssrn.com/sol3/papers.cfm?abstract_id=3423290

References

This page was last edited on Thursday, 27 Feb 2020 at 14:49 UTC

Explore related arguments