NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH
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Erik Loualiche

University of Minnesota, Carlson School
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Minneapolis, MN 55455
Tel: 7733447431

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Institutional Affiliation: University of Minnesota

NBER Working Papers and Publications

July 2016Buyout Activity: The Impact of Aggregate Discount Rates
with Valentin Haddad, Matthew Plosser: w22414
Buyout booms form in response to declines in the aggregate risk premium. We document that the equity risk premium is the primary determinant of buyout activity rather than credit-specific conditions. We articulate a simple explanation for this phenomenon: a low risk premium increases the present value of performance gains and decreases the cost of holding an illiquid investment. A panel of U.S. buyouts confirms this view. The risk premium shapes changes in buyout characteristics over the cycle, including their riskiness, leverage, and performance. Our results underscore the importance of the risk premium in corporate finance decisions.

Published: VALENTIN HADDAD & ERIK LOUALICHE & MATTHEW PLOSSER, 2017. "Buyout Activity: The Impact of Aggregate Discount Rates," The Journal of Finance, vol 72(1), pages 371-414. citation courtesy of

 
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