Does private equity (PE) contribute to financial fragility during economic crises? The proliferation of poorly structured transactions during booms may increase the vulnerability of the economy to downturns. During the 2008 crisis, PE-backed companies decreased investments less than did their peers and experienced greater equity and debt inflows, higher asset growth, and increased market share. These effects are especially strong among financially constrained companies and those whose PE investors had more resources at the crisis onset. In a survey, PE firms report being active investors during the crisis and spending more time working with their portfolio companies. Received July 19, 2017; editorial decision March 7, 2018 by Editor Wei Jiang.

Bank-affiliated private equity groups account for 30% of all private equity investments. Their market share is highest during peaks of the private equity market, when the parent banks arrange more debt financing for in-house transactions yet have the lowest exposure to debt. Using financing terms and ex post performance, we show overall that banks do not make superior equity investments to those of stand-alone private equity groups. Instead, they appear to expand their private equity engagement to take advantage of the credit market booms, while capturing private benefits from cross-selling of other banking services.

This article documents the fact that ventures funded by two successful angel groups experience superior outcomes to rejected ventures: They have improved survival, exits, employment, patenting, Web traffic, and financing. We use strong discontinuities in angel- funding behavior over small changes in their collective interest levels to implement a regression discontinuity approach. We confirm the positive effects for venture operations, with qualitative support for a higher likelihood of successful exits. On the other hand, there is no difference in access to additional financing around the discontinuity. This might suggest that financing is not a central input of angel groups.