A theory of LBO activity based on repeated debt-equity conflicts

• 成果类型: Article
• 署名作者: Malenko, Andrey; Malenko, Nadya
• 署名单位: Massachusetts Institute of Technology (MIT); Boston College
• 刊物名称: JOURNAL OF FINANCIAL ECONOMICS
• ISSN/ISSBN: 0304-405X
• DOI: 10.1016/j.jfineco.2015.06.007
• 发表日期: 2015
• 页码: 607-627
• 关键词: LEVERAGED BUYOUTS; PRIVATE EQUITY; reputation; Debt-equity conflicts; Club deals

摘要

We develop a theory of leveraged buyout (LBO) activity based on two elements: the ability of private equity-owned firms to borrow against their sponsors' reputation with creditors and externalities in sponsors' reputations due to competition and club formation. In equilibrium, the two sources of value creation in LBOs, operational improvements and financing, are complements. Moreover, sponsors that never add operational value cannot add value through financing either. Club deals are beneficial ex post by allowing low-reputation bidders with high valuations to borrow reputation from high-reputation bidders with low valuations, but they can destroy value by reducing bidders' investment in reputation. Unlike leverage of independent firms, driven only by firm-specific factors, buyout leverage is driven by economy-wide and sponsor-specific factors. (C) 2015 Elsevier B.V. All rights reserved.