Hostname: page-component-78c5997874-m6dg7 Total loading time: 0 Render date: 2024-11-10T12:34:02.326Z Has data issue: false hasContentIssue false
  • English
  • Français

The Private Equity-Leveraged Buyout Form of Finance Capitalism: Ethical and Social Issues, and Potential Reforms

Published online by Cambridge University Press:  23 January 2015

Richard P. Nielsen
Get access Rights & Permissions [Opens in a new window]

Abstract

This article explains how the private equity-leveraged buyout type of financial institution (PE-LBO) operates as a form of finance capitalism. PE-LBO capitalism is described and compared with other types of capitalism such as family business capitalism, managerial capitalism, and other forms of finance capitalism such as shareholder value capitalism. Ethical and social issues structurally related to the PE-LBO form are analyzed. Potential reforms and/or solutions are considered.

Type
Society for Business Ethics Conference Dialogue: Hedge Funds and Private Equity
Information
Business Ethics Quarterly , Volume 18 , Issue 3 , July 2008 , pp. 379 - 404
Copyright
Copyright © Society for Business Ethics 2008

Access options

Get access to the full version of this content by using one of the access options below. (Log in options will check for institutional or personal access. Content may require purchase if you do not have access.)

References

Acharya, V. V., Franks, J., & Servaes, H. 2007. Private equity: Boom and bust? Journal of Applied Corporate Finance, 19(4): 44–53.CrossRefGoogle Scholar
Aristotle, . 1953. The ethics of Aristotle: The Nicomachean ethics, trans. Thomson, J. A. K.. New York: Penguin.Google Scholar
Arnold, M. 2007a. Deal profitability supports private equity claims. Financial Times, September 27: 21.Google Scholar
Arnold, M.. 2007b. Unions vow to fight the “cancer” of hedge funds. Financial Times, March 17: 4.Google Scholar
Baskin, J. B., & Miranti, P. J. 1997. A history of corporate finance. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Beaud, M. 2000. A history of capitalism: 1500–2000. New York: Monthly Review Press.Google Scholar
Berman, D. K. 2008. Buyout shops show timing is everything in deal-making arena. The Wall Street Journal, February 26: C1, C5.Google Scholar
Blinder, A. S. 2007. The under-taxed kings of private equity. The New York Times, July 29: 4BU.Google Scholar
Blitz, J. 2007. UK flags regulatory measures for private equity companies. Financial Times, March 1: 1.Google Scholar
Boyer, R. O., & Morais, H. M. 1955. Labor’s untold story. New York: Cameron Associates.Google Scholar
Bruce, R. 2007. New pressures on private equity to go public. Financial Times, February 15: 9.Google Scholar
Cass, D. 2007. Borrowing without limits. The Wall Street Journal, March 19: C12.Google Scholar
Chandler, A. D. 1962. Strategy and structure: Chapters in the history of the industrial enterprise. Cambridge, MA: MIT Press.Google Scholar
Chandler, A. D. 1977. The visible hand: The managerial revolution in American business. Cambridge, MA: Harvard University Press.Google Scholar
Cohan, W. 2008. Why Wall Street has to alter its financial incentives. Financial Times, February 25: 9.Google Scholar
Collins, R. 1998. The sociology of philosophies: A global theory of intellectual change. Cambridge, MA: Harvard University Press.Google Scholar
Cox, R., Vise, D., & Cass, D. 2007. The lbo boom’s real fuel: Executive greed is driving current spate of deals, say street’s legal minds. The Wall Street Journal, March 31: B14.Google Scholar
Crawford, L. & Tett, G. 2008. Spain spared because it learnt lesson the hard way. Financial Times, February 5: 25.Google Scholar
Davies, P. J. 2008. Leveraged funds rush to sell debt. Financial Times, February 29: 25.Google Scholar
Donlan, T. G. 2007. Other people’s money. Barron’s, March 5: 54.Google Scholar
Dugan, L. J. 2007. How a Blackstone deal shook up a work force. The Wall Street Journal, July 27: 1, A8.Google Scholar
Economist. 2005. German capitalism, May 7: 63–65.Google Scholar
Ernst, & Young, . 2007. How do private equity investors create value? www.ey.com.Google Scholar
European Parliament. 2007. Hedge funds and private equity: A critical analysis. www.europari.europa.eu.Google Scholar
Fabrikant, G. 2007. For Yale’s money man, a higher calling. The New York Times, February 18: sec. 3, 1.Google Scholar
Financial Times. 2007. Invading the privacy of private equity: Bigger buy-outs should be matched by greater disclosure. February 24: 6.Google Scholar
Fohlin, C. 2007. Finance capitalism and Germany’s rise to industrial power. Cambridge: Cambridge University Press.CrossRefGoogle Scholar
Friedman, M. 1962. Capitalism and freedom. Chicago: University of Chicago Press.Google Scholar
Friedman, M.. 1970. The social responsibility of business is to increase its profits. New York Times Magazine, September 13: 32–33, 122–126.Google Scholar
Gapper, J. 2007. Sadly, it pays to retire disgracefully. Financial Times, November 8: 9.Google Scholar
Gardiner, A. G. 1923. Life of George Cadbury. London: Cassell.Google Scholar
Giles, C., & Tett, G. 2008. Central bankers digest the lessons of the credit crunch. Financial Times, February 12: 7.Google Scholar
Gordon, M. 2007. Do we condemn or cheer the flight to private equity? Financial Times, February 16: 11.Google Scholar
Greenberg, H. 2008. Performance-accelerated stock options align management with private equity. The Wall Street Journal, February 23: B3.Google Scholar
Gross, B. 2007. The shadow knows. www.allianzinvestors.com/commentary/mgr_billGross12012007_P.jsp.Google Scholar
Guerrera, F., & Politi, J. 2006. Flipping is a flop for investors, study says. Financial Times, September 20: 13.Google Scholar
Guerrera, F., Politi, J., & Freeland, C. 2006. Blackstone chief warns on pay gap. Financial Times, December 21: 16.Google Scholar
Guerrera, F., White, B., & Guha, K. 2008. Wall Street rescues Bear Stearns. Financial Times, March 15: 1.Google Scholar
Hadas, E. 2008. The great deleveraging. The Wall Street Journal, February 19: C10.Google Scholar
Higgins, B. 1968. Economic development. New York: Norton.Google Scholar
Ip, G., & Sender, H. 2006. Cash machine: In today’s buyouts, payday for firms is never far away. The Wall Street Journal, July 25: 1, A14.Google Scholar
Jackson, T. 2006. Bond and equity holder conflict has reached new heights. Financial Times, May 16: 30.Google Scholar
Jackson, T.. 2007. Debt risk time-bomb stalking the private equity industry. Financial Times, February 27: 24.Google Scholar
Jacobsen, K. 2001. mads@novo.dk: Vision, values and ways. Gyldendal, Denmark: Narayana Press.Google Scholar
Jensen, M. C. 2002. Value maximization, stakeholder theory, and the corporate objective function. Business Ethics Quarterly, 12: 235–56.CrossRefGoogle Scholar
Jensen, M. C., & Meckling, W. H. 1976. Theory of the firm: Managerial behavior, agency costs and ownership structure. Journal of Financial Economics, 3: 305–60.CrossRefGoogle Scholar
Jones, E. L. 1981. The European miracle. Cambridge: Cambridge University Press.Google Scholar
Kaplan, S. N., & Stein, J. C. 1993. The evolution of buyout pricing and financial structure (or, what went wrong) in the 1980s. Journal of Applied Corporate Finance, 6, 1: 72–88.CrossRefGoogle Scholar
Kindleberger, C. P., & Aliber, R. 2005. Manias, panics, and crashes: A history of financial crises. New York: Wiley.CrossRefGoogle Scholar
Lauricella, T. 2007. Mutual funds get mad. The Wall Street Journal, October 2: R1, R21.Google Scholar
Morgenson, G. 2008. Rescue me: A Fed bailout crosses a line. The New York Times, March 16: 1BU.Google Scholar
Nielsen, R. P. 2003. Organization theory and ethics: Varieties and dynamics of constrained optimization. In Tsoukas, H. & Knudsen, C. (Eds.), The Oxford handbook of organization theory. Oxford: Oxford University Press.Google Scholar
Nielsen, R. P.. 2005. Systematic corruption in financial services, types of capitalism, and ethics intervention methods. Business & Professional Ethics Journal, 23:135–65.CrossRefGoogle Scholar
Norwich, J. J. 2003. The middle sea: A history of the Mediterranean. New York: Doubleday.Google Scholar
Olson, M. 1982. The rise and decline of nations. New Haven, CT: Yale University Press.Google Scholar
Purcell, P. 2007. Private equity’s halcyon days are not yet threatened. Financial Times, March 8: 11.Google Scholar
Rublin, R. Lauren 2008. After the deluge. Barron’s, Dec. 14.Google Scholar
Santini, L. 2007. Why the buyout titans are stumbling in Asia. The Wall Street Journal, March 14: C4.Google Scholar
Schwartz, Eli. 1964. Corporation Finance. New York: St. Martin’s Press, 1964.Google Scholar
Sender, H. 2008. Buy-out firms raise billions for new funds. Financial Times, February 29: 1.Google Scholar
Sihler, W. W. 1971. Framework for financial decisions. Harvard Business Review, March-April: 123–35.Google Scholar
Sloan, A. P. 1969. My years with General Motors. New York: McGraw-Hill.Google Scholar
Smith, A. 1937. An inquiry into the nature and causes of the wealth of nations. New York: Modern Library.Google Scholar
Smith, C., Child, J., & Rowlinson, M. 1990. Reshaping work: The Cadbury experience. Cambridge: Cambridge University Press.Google Scholar
Smith, P. 2006. TPG tops buy-out league with $101 billion. Financial Times, December 27: 1.Google Scholar
Smith, P.. 2007. Study reveals private equity returns of 10%. Financial Times, March 13: 19.Google Scholar
Smith, R. 1990. The takeover game isn’t dead, It’s just gone private. Forbes, October 1: 63.Google Scholar
Solomon, E. 1963. The theory of financial management. New York: Columbia University Press.Google Scholar
Sorkin, A. R. 2008. Private equity buyouts get split review of job losses. International Herald Tribune, January 26: 13.Google Scholar
Tett, G., Atkins, R., & Beales, R. 2006. EU central banks call for caution in leveraged finance. Financial Times, December 15: 1.Google Scholar
Ulrich, D., & Brockbank, W. 2005. The hr value proposition. Boston: Harvard Business School Press.Google Scholar
Useem, M. 1996. Investor capitalism: How money managers are changing the face of corporate America. New York: Basic Books.Google Scholar
Wolf, M. 2007. Barbarians at the gates: the balance of pros and cons. Financial Times, February 28: 15.Google Scholar