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Private Equity, Buy-outs and Insolvency Risk


  • Nick Wilson,

    Corresponding author
    • Address for correspondence: Nick Wilson, Credit Management Research Centre, Leeds University Business School, Leeds, LS2 9JT, UK. e-mail:

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  • Mike Wright

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    • The first author is at the Credit Management Research Centre, Leeds University Business School, UK. The second author is at the Centre for Management Buy-out Research, Imperial College Business School, London, UK, and the University of Ghent, Belgium. The authors are grateful to an anonymous referee and the Editor for helpful comments and suggestions on earlier drafts of the paper. Thanks to Viral Acharya, Ulf Axelson, Douglas Cumming, Julian Franks, Steve Kaplan, Josh Lerner, Donald Siegel, Per Stromberg, Steve Thompson and participants at the Second Private Equity Conference, London Business School, June 2009 and the Essec Conference, Paris, June 2010. (Paper received October, 2011; revised version accepted May, 2013).


Private equity restructuring using debt has been criticized for increasing financial distress and bankruptcy especially following the financial crisis. We build a unique dataset comprising the population of over 9 million firm-year observations and 153,000 insolvencies during the period 1995–2010. We compare the insolvency hazard of the spectrum of buy-out types within the corporate population over time and investigate the risk profile of the companies pre-buy-out. Controlling for size, age, sector and macro-economic conditions, private-equity backed buy-outs are no more prone to insolvency than non-buy-outs or other types of management buy-ins. Moreover, leverage is not the characteristic that distinguishes failed buy-outs from those surviving.