Private equity owned companies' performance in Sweden after the financial crises in 2007-2008

Abstract

The private equity industry has grown tremendously in the past 20-30 years, and several studies have been made to examine the potential superior returns by private equity owned companies. However, there has been limited research on the performance of private equity owned companies during extraordinary conditions, such as financial crises. The aim of this paper is to compare the performance of publicly traded companies to the performance of private equity owned companies during a four year period after the financial crisis, and examine what factors had impacted the companies’ profitability the most. It was hypothesized that increased growth, a higher debt level and decreased working capital would have had a positive impact on profitability. The results show that increased growth and higher debt levels had a positive significant impact on profitability for private equity owned companies, while having had a negative impact on profitability for publicly traded companies. Reduced working capital did not have a statistically significant impact on profitability. The interpretation of these results is that private equity owned companies were better at optimizing their capital structure, even under extraordinary conditions. Furthermore, the interpretation of the negative effect of increased growth on profitability for publicly traded companies is that they did not perform as well after the financial crisis as the private equity owned companies. The conclusion from this study is therefore that private equity owned companies did recover better than publicly traded companies, and that growth and debt level affected the companies’ profitability the most.