Private Equity, Financial Strategy, and the Crisis

Does private equity (PE) contribute to financial fragility during economic crises? The proliferation of poorly structured transactions during booms may increase the vulnerability of the economy to downturns. During the 2008 crisis, we show that PE-backed companies decreased investments less than their peers, while experiencing greater equity and debt inflows, especially among financially constrained companies and those whose PE investors had more resources at the crisis onset. PE-backed companies experienced higher asset growth and increased market share during the crisis. In a survey, PE firms report being active investors during the crisis, spending more time working with their portfolio companies.