Private equity has often been criticised for relying on cheap debt rather than improving the businesses it buys. Our evidence does not support that view. Lower borrowing costs made buyouts more leveraged, but we do not find that they weakened operating performance.
Dr Mingzhu Wang, Reader in Finance at King’s Business School and co-author of the study
21 September 2026
Study finds low-rate era made buyouts more leveraged, but did not weaken performance
Researchers found lower borrowing costs after the 2008 financial crisis encouraged private equity firms to use more debt, but did not reduce operational performance.
New research from King’s Business School has found private equity firms did not become less effective at improving businesses during the era of ultra-low borrowing costs that followed the 2008 financial crisis.
The study examines whether cheaper debt changed how private equity firms create value in buyouts. A common criticism of the sector is that low interest rates encouraged firms to rely more heavily on financial engineering, rather than making real operational improvements to the companies they acquire.
Researchers analysed over 1000 UK private equity buyouts completed between 2005 and 2019, comparing companies before and after acquisition with similar non-buyout firms. They found that lower borrowing costs led private equity firms to use more debt in buyout deals. However, there was no evidence that lower financing costs reduced operating returns, profit margins, sales growth, productivity or overall returns to capital.
The authors say the results matter for investors and policymakers because they suggest private equity value creation remained resilient during the low-rate period, rather than being replaced by debt-driven financial engineering.
The findings challenge the idea that the post-financial-crisis period of cheap money made private equity firms less disciplined owners. Instead, the research suggests that, while buyouts became more highly leveraged, operational performance did not deteriorate as a result.
The paper, The effect of the cost of capital on private equity buyout performance, is authored by Professor Paul Guest, Dr Mingzhu Wang and Simon Welte of King’s Business School and published in the Journal of Corporate Finance.
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Reader in Accounting and Financial Management
Professor of Corporate Finance
PhD Student in Accounting & Financial Management