On the Heterogeneity of Levered Going Private Transactions
Posted: 8 Dec 1998
In contrast to prior literature, we argue that there are two types of poorly performing firms going private through a levered buyout (LBO). One group consists of firms in which managers own an insignificant fraction of their firm?s stock and are vulnerable to a hostile takeover. The other group consists of firms in which managers own a significant fraction of their firm?s stock and so face little risk of a hostile takeover. Our evidence indicates that are two such groups of LBOs and that their motivations and post-transaction actions are different.
JEL Classification: G31, G32
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