Private Equity-Owned Companies and COVID-19: A Study of Financial Decisions and Operational Performance

Abstract: This study aims to investigate the differences in financial decisions and operational performance of PE-backed companies relative to non-PE-backed companies during COVID-19. Our main analysis is conducted with a difference-in-differences model using a sample of 181 PE-owned companies and 850 matched companies headquartered in the United Kingdom. We find indications that PE-backed firms' financial decisions and operational performance during COVID-19 were partly different relative to comparable peers. Consistent with previous studies of the Global Financial Crisis 2008, PE-backed firms experienced an increase in net equity contribution relative to their peers during the pandemic. Our findings also suggest a relative increase in leverage ratio for PE-backed firms. Contrary to the previous body of research, we find a relative decrease in profitability for PE-backed firms relative to non-PE-backed firms. Moreover, our findings suggest that the change in inventory for PE-owned firms increased relative to comparable firms that do not have a PE owner. Working capital management of PE-backed firms during crises have not been appropriately investigated in previous literature, and our findings thus provide an addition to the previous body of research. Furthermore, our study complements previous literature by presenting insights regarding PE-backed firms' performance and financial decisions during the COVID-19 pandemic, which hitherto has not been explored extensively.