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Leveraged Buyouts and Financial Stability: The Impact of Private Equity Ownership during Turbulent Times - Evidence from a Difference-in-Differences Approach on Investment in Sweden

Wingårdh, Catharina LU (2025) NEKP01 20251
Department of Economics
Abstract
This study examines how firms acquired in leveraged buyouts (LBOs) by private equity (PE) firms manage financial stability during macroeconomic turbulence by using investment as proxy. In an LBO, the acquisition is typically financed with substantial debt, which is placed on the balance sheet of the target firm, resulting in high leverage. A staggered Difference-in-Differences design is employed using Swedish firm-level data from 2014 to 2023 to analyze how PE-backed firms respond to financial pressure compared to similar non-PE-backed firms. The results show that firms acquired by PE investors in an LBO between 2017 and 2019 reduced their investment relative to the matched control firms from 2020 to 2023. This period coincides with two... (More)
This study examines how firms acquired in leveraged buyouts (LBOs) by private equity (PE) firms manage financial stability during macroeconomic turbulence by using investment as proxy. In an LBO, the acquisition is typically financed with substantial debt, which is placed on the balance sheet of the target firm, resulting in high leverage. A staggered Difference-in-Differences design is employed using Swedish firm-level data from 2014 to 2023 to analyze how PE-backed firms respond to financial pressure compared to similar non-PE-backed firms. The results show that firms acquired by PE investors in an LBO between 2017 and 2019 reduced their investment relative to the matched control firms from 2020 to 2023. This period coincides with two major macroeconomic and geopolitical shocks: the COVID-19 pandemic and the Russian invasion of Ukraine. The results suggest that LBOs may impair financial stability during times of crisis, which is consistent with theoretical expectations. However, the possibility that PE ownership confers advantages that enable firms to better withstand financial distress, as suggested by previous research, cannot be ruled out. (Less)
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author
Wingårdh, Catharina LU
supervisor
organization
course
NEKP01 20251
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Leveraged Buy-Out, Private Equity, Investment, Financial Distressed Times, Crisis, Difference-in-Difference
language
English
id
9194438
date added to LUP
2025-09-12 11:18:21
date last changed
2025-09-12 11:18:21
@misc{9194438,
  abstract     = {{This study examines how firms acquired in leveraged buyouts (LBOs) by private equity (PE) firms manage financial stability during macroeconomic turbulence by using investment as proxy. In an LBO, the acquisition is typically financed with substantial debt, which is placed on the balance sheet of the target firm, resulting in high leverage. A staggered Difference-in-Differences design is employed using Swedish firm-level data from 2014 to 2023 to analyze how PE-backed firms respond to financial pressure compared to similar non-PE-backed firms. The results show that firms acquired by PE investors in an LBO between 2017 and 2019 reduced their investment relative to the matched control firms from 2020 to 2023. This period coincides with two major macroeconomic and geopolitical shocks: the COVID-19 pandemic and the Russian invasion of Ukraine. The results suggest that LBOs may impair financial stability during times of crisis, which is consistent with theoretical expectations. However, the possibility that PE ownership confers advantages that enable firms to better withstand financial distress, as suggested by previous research, cannot be ruled out.}},
  author       = {{Wingårdh, Catharina}},
  language     = {{eng}},
  note         = {{Student Paper}},
  title        = {{Leveraged Buyouts and Financial Stability: The Impact of Private Equity Ownership during Turbulent Times - Evidence from a Difference-in-Differences Approach on Investment in Sweden}},
  year         = {{2025}},
}