What Drives Leverage in Leveraged Buyouts? An Analysis of European LBOs' Capital Structure

48 Pages Posted: 18 Feb 2009

See all articles by Samantha Brinkhuis

Samantha Brinkhuis

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Wouter De Maeseneire

Vlerick Business School; Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE)

Date Written: February 15, 2009

Abstract

This paper examines leverage in European private equity led LBOs. We use a unique, self-constructed sample of 126 European private equity sponsored buyouts completed between June 2000 and June 2007. We find that leverage determinants derived from classical capital structure theories do not explain leverage in LBOs, while these determinants do drive leverage in a control group of comparable public firms. Rather, we document that leverage levels in LBOs are related to the prevailing conditions in the debt market. In addition, our results support the hypothesis that the reputation of the private equity sponsor involved in the buyout is positively related to LBO leverage. Finally, also the type of buyout (primary versus secondary) is related to the amount of leverage used.

Keywords: leverage, capital structure, buyouts, LBO, private equity

JEL Classification: G32, G24

Suggested Citation

Brinkhuis, Samantha and De Maeseneire, Wouter, What Drives Leverage in Leveraged Buyouts? An Analysis of European LBOs' Capital Structure (February 15, 2009). Available at SSRN: https://ssrn.com/abstract=1343871 or http://dx.doi.org/10.2139/ssrn.1343871

Samantha Brinkhuis

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

Wouter De Maeseneire (Contact Author)

Vlerick Business School ( email )

Reep 1
Ghent
BE-9000 Ghent
Belgium

Erasmus University Rotterdam (EUR) - Erasmus School of Economics (ESE) ( email )

P.O. Box 1738
3000 DR Rotterdam, NL 3062 PA
Netherlands

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