Private Equity and Financial Fragility During the Crisis

Private Equity and Financial Fragility During the Crisis

By Shai Bernstein, Josh Lerner, Filippo Mezzanotti
July 18,2017Working Paper No. 3563

Do private equity firms contribute to financial fragility during economic crises? We find that during the 2008 financial crisis, PE-backed companies increased investments relative to their peers, while also experiencing greater equity and debt inflows. The effects are stronger among financially constrained companies and those whose private equity investors had more resources at the onset of the crisis. PE-backed companies consequentially experienced higher asset growth and increased market share during the crisis.