How Does an LBO Impact the Target's Industry?

58 Pages Posted: 31 Aug 2014 Last revised: 17 Jan 2018

See all articles by Jarrad Harford

Jarrad Harford

University of Washington; European Corporate Governance Institute (ECGI)

Jared R. Stanfield

University of Oklahoma; Financial Research Network (FIRN)

Feng Zhang

Southern Methodist University (SMU) - Finance Department

Date Written: September 13, 2016


We document the implications of an LBO for the target firm’s peers in terms of follow-on acquisitions, alliances, investment, and governance changes. LBOs tend to lead overall merger activity, predicting both more LBOs and strategic acquisitions in the industry. LBOs predict significant changes to investment outlays, strategic alliances, and anti-takeover provisions. Tests show that our evidence is most consistent with LBOs causing or signaling private information about optimal changes to the industry rather than LBO sponsors simply selecting into changing industries. Our study sheds light on LBOs’ role in merger activity as well as their motivation.

Keywords: leverage buyouts, mergers and acquisitions, industry peers

JEL Classification: G31, G32, G34

Suggested Citation

Harford, Jarrad and Stanfield, Jared R. and Zhang, Feng, How Does an LBO Impact the Target's Industry? (September 13, 2016). Available at SSRN: or

Jarrad Harford

University of Washington ( email )

Box 353226
Seattle, WA 98195-3226
United States
206-543-4796 (Phone)
206-543-7472 (Fax)


European Corporate Governance Institute (ECGI) ( email )

c/o the Royal Academies of Belgium
Rue Ducale 1 Hertogsstraat
1000 Brussels

Jared R. Stanfield (Contact Author)

University of Oklahoma ( email )

Norman, OK 73019
United States


Financial Research Network (FIRN)

C/- University of Queensland Business School
St Lucia, 4071 Brisbane


Feng Zhang

Southern Methodist University (SMU) - Finance Department ( email )

SMU Cox School of Business
6212 Bishop Blvd
Dallas, TX 75275
United States

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