Private Equity and Long-Term Investment: Evidence from Sweden

Detta är en D-uppsats från Handelshögskolan i Stockholm/Institutionen för finansiell ekonomi

Sammanfattning: There is a long-lasting debate on whether private equity (PE) firms invest long-term in portfolio firms, or if their short investment horizon lead to long-term growth being sacrificed to boost short-term performance. In this thesis, we examine three types of long- term investments: changes in asset investments, innovative investments and investments in personnel. Using a sample of 176 Swedish PE-backed leveraged buyouts (LBOs) and a carefully constructed control sample we find that acquired firms invest significantly more than controls in physical assets (mainly fixed assets but also capital expenditure) and personnel (employees and wages) during the three years following a buyout. Controlling the observed increases for growth in firm size, we show that while investments in personnel grow in line with firm size, physical assets grow disproportionately more. The post-buyout growth in assets is concentrated among private-to-private and divisional buyouts, i.e. deals in which the seller is an individual or a conglomerate. In contrast, secondary transactions and public-to-private transactions (sellers are PE firms or public companies) show no effect on asset investments. Our results indicate that PE firms help targets alleviate financial constraints and take advantage of unexploited investment opportunities. These results diverge from existing evidence that LBO targets invest less or downsize after being acquired by a PE firm.

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