The Impact of Corporate Governance Mechanisms on Value Increase in Leveraged Buyouts

42 Pages Posted: 25 Jan 2006

See all articles by Mike Wright

Mike Wright

Nottingham University Business School

Erkki V Nikoskelainen

Swedish School of Economics and Business Administration

Date Written: November 29, 2005

Abstract

Using a novel, hand-collected dataset, comprising 321 exited buyouts in the UK in the period 1995 to 2004, this study examines the realised value increase in exited leveraged buyouts. Testing the free cash flow theory, we show that value increase and return characteristics are related to corporate governance mechanisms resulting from a leveraged buyout. Furthermore, we show that return characteristics and the relation between buyout governance mechanisms, gearing, number of participants in equity syndicate and level of managerial ownership are related to size of buyout. We find that there exists a balance of interrelated governance mechanisms and deviations from this balance result in lower value increase.

Keywords: buyout, LBO, MBO, IRR, United Kingdom, corporate governance

JEL Classification: G3, G34

Suggested Citation

Wright, Mike and Nikoskelainen, Erkki V, The Impact of Corporate Governance Mechanisms on Value Increase in Leveraged Buyouts (November 29, 2005). Available at SSRN: https://ssrn.com/abstract=877233 or http://dx.doi.org/10.2139/ssrn.877233

Mike Wright

Nottingham University Business School ( email )

Jubilee Campus
Wollaton Road
Nottingham, NG8 1BB
United Kingdom
+44 115 951 5257 (Phone)
+44 115 951 5204 (Fax)

Erkki V Nikoskelainen (Contact Author)

Swedish School of Economics and Business Administration ( email )

FI-00101 Helsinki
Finland

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