Document Type

Article

Language

eng

Format of Original

47 p.

Publication Date

1-2001

Publisher

Elsevier

Source Publication

Journal of Financial Economics

Source ISSN

0304-405X

Abstract

This paper examines the role buyout specialists play in structuring the debt used to finance the LBO and in monitoring management in the post-LBO firm. We find that when buyout specialists control the majority of the post-LBO equity, the LBO transaction is likely to be financed with less short-term and/or senior debt and less likely to experience financial distress. We also find that buyout specialists have greater board representation on smaller boards, suggesting that they actively monitor managers, and that for these transactions, using debt with tighter terms does not significantly increase the firm's performance. In contrast, in all other transactions using such debt does significantly increase the firm's performance. These findings suggest that active monitoring by a buyout specialist substitutes for tighter debt terms in monitoring and motivating managers of LBOs.

Comments

Accepted version. Journal of Financial Economics, Vol. 59, No. 1 (January 2001): 101-147. DOI.

NOTICE: this is the author’s version of a work that was accepted for publication in Journal of Financial Economics. Changes resulting from the publishing process, such as peer review, editing, corrections, structural formatting, and other quality control mechanisms may not be reflected in this document. Changes may have been made to this work since it was submitted for publication. A definitive version was subsequently published in Journal of Financial Economics, VOL 59, ISSUE 1, (January 2001) DOI.

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