Private Equity and Financial Fragility during the Crisis. Josh Lerner, 2017, Paper, “Does private equity increase financial fragility during economic crises? To investigate this issue, we examine the financial decisions and performance of private equity-backed companies in the United Kingdom during the 2008 financial crisis. We find that PE-backed companies experienced a smaller decline in investment, relative to a carefully selected control group. PE-backed companies also experienced a larger increase in debt and equity issuances, while overall leverage remained unchanged. The effects are particularly strong for companies that were more likely to be financially constrained and those where private equity sponsors were more likely to have resources to help the portfolio company. The results are consistent with the hypothesis that PE sponsors relax financing constraints during a sudden tightening of credit markets and inconsistent with the hypothesis that private equity increase financial fragility during periods of financial turmoil.Link