Work

What drives U.S. corporate private equity? An historical perspective

Year: 2025

Type: article

Abstract: This study models the closely held (PE) share of U.S. nonfinancial corporate equity over time. Corporate income tax rates, the Sarbanes-Oxley Act, default risk, and the real medium-run Treasury yield significantly affect the PE share, consistent with other studies which separately analyze these factors. The PE share is negatively related to business loan delinquencies and real medium-term Treasury rates. High interest rates discourage PE funds from using leverage to finance buyouts of public companies and fund distributions of interim cash distributions that enhance the relative liquidity of the closely held firms in PE fund portfolios. Interim cash distributions by PE funds help to avoid the double-taxation of dividends, thus causing the appeal of PE to rise with corporate income tax rates, which increases the PE share. The PE share rose during the Enron scandal and after the Sarbanes-Oxley Act (SOX), which increased the costs of continuing as, or becoming, a publicly traded corporation. The PE share is well explained and tracked by key macroeconomic variables as well as tax and regulatory policies.

Source: Journal of Financial Stability

DOI: 10.1016/j.jfs.2025.101413

Authors: John V. Duca, Franklin Sanchez-Colburn

Institutions: Federal Reserve Bank of Dallas, Oberlin College

Language: English

Topic: Private Equity and Venture Capital

Subfield: Accounting

Field: Business, Management and Accounting

Domain: Social Sciences

SDG: Peace, justice, and strong institutions

Open Access status: hybrid

Estimated APC paid: $3,470