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The effect of the cost of capital on private equity buyout performance
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DOI：10.1016/j.jcorpfin.2026.103005.png)
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Abstract
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This study examines the impact of the cost of capital on private equity buyouts between 2005 and 2019. We test whether the ultra-low cost of debt over the latter half of this period causes lower changes in operating performance. We find that a lower aggregate cost of capital significantly increases portfolio company leverage but has no effect on operating returns, margins, growth, or productivity. The lack of relationship cannot be explained by higher buyout multiples, which only partially offset incentives for lower-performance buyouts. Overall, our evidence does not support the proposed mechanisms underlying the theory.
Keywords:
cost of capital
private equity buyouts
operating performance
leverage
financial returns
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