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What are the main drivers of leverage in leveraged buyouts?
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.).
KTH, School of Industrial Engineering and Management (ITM), Industrial Economics and Management (Dept.).
2013 (English)Independent thesis Basic level (degree of Bachelor), 10 credits / 15 HE creditsStudent thesis
Abstract [en]

This paper examines the main drivers of leverage in leveraged buyouts, and provides an explanation for the significant decrease in leverage in the aftermath of the financial crisis. We test market-varying factors by regressing leverage measures on potential drivers and find that leverage is largely driven by debt market conditions and private equity market activity. In particular, we argue that liquid debt markets impact buyout leverage more than other macro-factors, such as future view on equity markets and interest rates. Private equity market activity being a driver implies that leverage increases when markets are characterised by fierce competition. Moreover, the results also suggest that leverage determinants changed as a consequence of the financial crisis. Leverage is in recent years highly related to debt market liquidity and equity markets, but independent of private equity market activity. We argue that this is a consequence of increased macro awareness and more conservative views on company outlooks.

Place, publisher, year, edition, pages
2013. , 22 p.
Keyword [en]
Private equity, LBO, leverage levels, debt levels
National Category
Mathematical Analysis
Identifiers
URN: urn:nbn:se:kth:diva-171405OAI: oai:DiVA.org:kth-171405DiVA: diva2:843596
Subject / course
Finance
Educational program
Master of Science in Engineering - Industrial Engineering and Management
Supervisors
Examiners
Available from: 2016-06-16 Created: 2015-07-29 Last updated: 2016-06-16Bibliographically approved

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CiteExportLink to record
Permanent link

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Cite
Citation style
  • apa
  • ieee
  • modern-language-association-8th-edition
  • vancouver
  • Other style
More styles
Language
  • de-DE
  • en-GB
  • en-US
  • fi-FI
  • nn-NO
  • nn-NB
  • sv-SE
  • Other locale
More languages
Output format
  • html
  • text
  • asciidoc
  • rtf