Kapitalfondes værdiskabelse gennem kapitalstruktur

Magnus Ryborg Hansen

Student thesis: Master thesis


The objective of this thesis is to determine whether Private Equity (PE) funds can generate value through capital structure by evaluating the effect of Private Equity ownership on the cost of capital in 30 Danish Private Equity owned companies. The thesis takes a quantitative approach by statistically comparing the cost of capital under Private Equity ownership with the cost of capital if the companies, hypothetically, have had another ownership structure. PE funds can theoretically create value through capital structure if they, all else equal, can lower the cost of capital for the company. The results show that PE funds can obtain a lower cost of capital compared to other ownership structures for the same company. When the companies are under private equity ownership they obtain a 2.4%-point lower cost of capital on average, aggregated over the entire private equity ownership period. However, the private equity advantage does only seem to apply when the companies has high financial risk. The results show that the cost of capital is significantly lower under private equity ownership in the beginning of the ownership period, where the financial risk is higher. In the two last years of ownership when the financial risk is lower as debt are being repaid, the cost of capital under private equity does not seem to be different from what can be achieved by any other ownership structure. The private equity ownership structure appears favourable under high financial risk, because of their active ownership model and frequent interactions with creditors. The active ownership makes the companies able to adjust faster to lower activity level and a restructuring process are done faster and more frequent compared to other ownership structures. The frequent interaction with creditors creates less asymmetric information between the PE fund and creditors. Furthermore, it aligns interest of the two parties because of the reliability to each other – the bank sees great earnings potential and the PE fund needs funding in the future. In conclusion, the PE funds create value for their portfolio companies through capital structure by leveraging the capital structure to a point, where the private equity ownership structure is favourable over other ownership structures.

EducationsMSc in Finance and Accounting, (Graduate Programme) Final Thesis
Publication date2016
Number of pages89