TY  - JOUR
AU  - Groh,Alexander Peter
AU  - Gottschalg,Oliver
TI  - The Opportunity Cost of Capital of US Buyouts
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 14148
PY  - 2008
Y2  - June 2008
UR  - http://www.nber.org/papers/w14148
L1  - http://www.nber.org/papers/w14148.pdf
N1  - Author contact info:
Alexander Peter Groh
GSCM - Montpellier Business School
Finance Department
E-Mail: agroh@iese.edu

Oliver Gottschalg
HEC School of Management
E-Mail: gottschalg@hec.fr
M3  - presented at "New World of Private Equity Conference", April 4-5, 2008
AB  - This paper measures the risk-adjusted performance of US buyouts. It draws on a unique and proprietary set of data on 133 US buyouts between 1984 and 2004. For each of them we determine a public market equivalent that matches it with respect to its timing and its systematic risk. After a correction for selection bias in our data, the regression of the buyout internal rates of return on the internal rates of return of the mimicking portfolio yields a positive and statistically significant alpha. Our sensitivity analyses highlight the necessity of a comprehensive risk-adjustment that considers both operating risk and leverage risk for an accurate assessment of buyout performance. This finding is particularly important as existing literature on that topic tends to rely on performance measures without a proper risk-adjustment.
ER  -