The Effect of Private Equity on the Stability of Corporate Capital Structure

Abstract

The purpose of this study is to investigate whether private equity activities drive the instability of capital structure. By testing the capital structure stability of U.S. firms for both private equity target firms and general listed firms. The result shows that the private equity activities (e.g. leveraged Buyout and leveraged recapitalization) are correlated with the instability of corporate capital structure. These activities affect target firm’s capital structure as well as other similar firms in the same industry. The result also indicates that there is a positive correlation between the instability and the likelihood that firm will become private equity target. Moreover, the result from regression shows that the probability of firm will do leveraged recapitalization increase along with the likelihood that firm will become private equity target.