The Evolution of Capital Structure and Operating Performance after Leveraged Buyouts: Evidence from U.S. Corporate Tax Returns

67 Pages Posted: 20 Feb 2011 Last revised: 1 May 2013

Jonathan B. Cohn

University of Texas at Austin

Lillian F. Mills

University of Texas at Austin - McCombs School of Business

Erin Towery

University of Georgia

Date Written: April 10, 2013

Abstract

This study uses corporate tax return data to examine the evolution of firms' financial structure and performance after leveraged buyouts for a comprehensive sample of 317 LBOs taking place between 1995 and 2007. We find little evidence of operating improvements subsequent to an LBO, although consistent with prior studies, we do observe operating improvements in the set of LBO firms that have public financial statements. We also find that firms do not reduce leverage after LBOs, even if they generate excess cash flow. Our results suggest that effecting a sustained change in capital structure is a conscious objective of the LBO structure.

Keywords: Leveraged Buyouts, Private Equity, Capital Structure, Corporate Governance

JEL Classification: G34, G32, H25

Suggested Citation

Cohn, Jonathan B. and Mills, Lillian F. and Towery, Erin, The Evolution of Capital Structure and Operating Performance after Leveraged Buyouts: Evidence from U.S. Corporate Tax Returns (April 10, 2013). McCombs Research Paper Series No. ACC-02-11. Available at SSRN: https://ssrn.com/abstract=1764406 or http://dx.doi.org/10.2139/ssrn.1764406

Jonathan B. Cohn (Contact Author)

University of Texas at Austin ( email )

Red McCombs School of Business
Austin, TX 78712
United States
512-232-6827 (Phone)

Lillian F. Mills

University of Texas at Austin - McCombs School of Business ( email )

Austin, TX 78712
United States

Erin Towery

University of Georgia ( email )

Terry College of Business
Athens, GA 30602-6254
United States

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