Headlines 2016

Private Equity’s Unintended Dark Side

2016-02-19


In the Columbia Law School's Blog Alexander Ljungqvist, NYU and affiliated to IFN, Lars Persson, IFN, and Joacim Tåg, IFN, writes about long term consequences of buyouts. The study focuses on public-to-private buyouts which in the US account for an estimated 45% of PE transactions by value. As a consequence, the size of the U.S. stock market has fallen dramatically in recent years, Lungqvist, Persson and Tåg write.

What can be done about this trend?

Lungqvist, Persson and Tåg suggest that "at the simplest level, government may consider taxing private equity activity involving delistings or subsidize venture capital activity involving new listings". More subtly, they argue. "current government policies may aggravate the problem we identify, insofar as tax breaks enjoyed by private equity firms contribute to an excessive level of buyout activity".

The three authors note that "similarly, policies intended to improve disclosure, transparency, or governance standards at listed firms may be desirable from the point of view of protecting investors but can also increase the cost of remaining listed and so can have the unintended consequence of triggering delistings and a shrinking of the stock market". Their analysis suggests that policy-makers should take this into account when balancing the pros and cons of different regulations of stock market listed firms.

Read the blog post

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