Private equity firms are frequently characterized as the vultures of the finance world, swooping in to strip what value they can out of the newly debt-laden companies, then abandoning them to bankruptcy and liquidation. But is such a characterization warranted? According to “Private Equity and the Resolution of Financial Distress,” a study presented at the January 2012 American Finance Association Meeting, the answer is a clear “no.”

The study, co-authored by Edith Hotchkiss of the Carroll School of Management at Boston College, David C. Smith of the McIntire School of Commerce at the University of Virginia, and Per Stromberg of the Institute of Financial Research at the Stockholm School of Economics, sought insight into two primary private equity-related questions. First, are private equity-backed firms more likely to declare bankruptcy than other debt-laden firms? Secondly, if bankruptcy is declared, how does the restructuring and recovery process of private-equity backed firms compare with that of non-private equity-backed firms?

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