Is it Free Cash Flow, Tax Savings, or Neither?An Empirical Confirmation of Two Leading Going‐private Explanations:The Case of ReLBOs

Kösedağ, Arman; Lane, William R.

doi:10.1111/1468-5957.00431

Cited by 16 publications

(7 citation statements)

References 14 publications

(17 reference statements)

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“…Finally, Kosedag and Lane (2003) analysed a sample of 21 US re-LBOs -when firms go private and then return to the market and finally go private again. Our study uses a sample of 138 public-to-private transactions covering the period 1998-2004.…”

mentioning

confidence: 99%

Public to private transactions, private equity and financial health in the UK: an empirical analysis of the impact of going private

2013

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confidence: 99%

Public to private transactions, private equity and financial health in the UK: an empirical analysis of the impact of going private

2013

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“…However, while the relatively low debt ratio in R-LBOs provides ample room for post-buyout leveraging, these statistics suggest that debt levels were not distinguishable in pre-buyout R-LBOs and continuing firms. While the debt variable in this study represents a rough proxy to test Jensen's (1986) free cash flow hypothesis, it appears that the hypothesis was not supported (Kosedag and Lane, 2002;Kieschnick, 1998;Servaes, 1994).…”

Section: Resultsmentioning

confidence: 62%

Rethinking value creation in leveraged buyouts

Braun

Latham²

2009

Management Decision

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Purpose -This study aims to examine the governance structure of the firm undergoing a complete buyout cycle (reverse leveraged buyout). Its purpose is to empirically explore the evolution of corporate board structures as a unique source of value creation, in addition to the agency mechanisms of the discipline of debt and incentives of equity participation. Design/methodology/approach -The authors rely on agency theory and the resource dependence perspective to develop sets of hypotheses that examine changes in the board composition of 65 R-LBOs and 65 matched continuing firms spanning a 25-year period . Findings -The empirical results reveal numerous insights about why R-LBOs go private, to what extent boards restructure during the buyout phase, and how those changes relate to firm performance. Taken together, the findings give strong credence to the argument that boards represent a supplemental source of value creation in the buyout process.Research limitations/implications -For scholars, the study presents a platform for further inquiry into the role of boards of directors in R-LBOs as well as the inclusion of resource dependence theory to inform on the phenomenon. Practical implications -The study helps to address this new source of value creation for practical interest. It offers a benchmark for buyout firms to compare their board characteristics by establishing linkages between pre-buyout deficiencies, post-buyout modifications, and post-SIPO performance. Originality/value -The results shift scholarly attention away from the structural governance tools to the group dynamics of the board. The findings call into question the restricted attention given by buyout researchers to leverage and ownership as value drivers by prompting a closer evaluation of the relationship between buyout board structures and related structuring of debt and managerial equity participation. Furthermore, the inclusion of the resource-dependency perspective alongside agency theory as an explanatory theory allows for a richer account of the LBO phenomenon and its sources of value creation.

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“…In a study of 21 reverse LBOs, Kosedag and Lane (2002) perceived undervaluation is a statistically significant determinant of the decision to go private. It is however important to take into account that some buyouts, and MBOs in particular, may be subject to downward earnings and stock price manipulation (Perry and Williams (1994) and Mao and Renneboog (2015)).…”

Section: Resultsmentioning

confidence: 96%

Leveraged Buyouts: A Survey of the Literature

Renneboog

Vansteenkiste²

2017

SSRN Journal

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This paper provides an exhaustive literature review of the motives for public-to-private LBO transactions. First, the paper develops the theoretical framework for the potential sources of value creation from going private: a distinction is made between the reduction in agency costs, stakeholder wealth transfers, tax benefits, transaction costs savings, takeover defense strategies, and corporate undervaluation. The paper then reviews and summarizes whether and how these theories have been empirically verified in the four different strands of literature in LBO research. These strands of literature are categorized by phase in the LBO transaction: Intent (of a buyout), Impact (of the LBO on the various stakeholders), Process (of restructuring after the leveraged buyout) and Duration (of retaining the private status). Then, the paper shows that in the first half of the 2000s, a public-to-private LBO wave re-emerged in the US, UK and Continental Europe, whose value vastly exceeded that of the 1980s US LBO wave. Finally, the paper provides suggestions for further research.

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Is it Free Cash Flow, Tax Savings, or Neither?An Empirical Confirmation of Two Leading Going‐private Explanations:The Case of ReLBOs

Cited by 16 publications

References 14 publications

Public to private transactions, private equity and financial health in the UK: an empirical analysis of the impact of going private

Public to private transactions, private equity and financial health in the UK: an empirical analysis of the impact of going private

Rethinking value creation in leveraged buyouts

Leveraged Buyouts: A Survey of the Literature

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