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AbstractThis study examines the risk‐adjusted stock returns realized by shareholders of firms acquired through leveraged buyouts to assess the economic gains associated with this type of acquisition. Stockholders of firms acquired through leveraged buyouts realize significant positive abnormal returns as a result of the buyout announcement. The findings support the notion of value creation in leveraged buyouts.

In the present research a theoretical model of corporate divestitures is developed in which the wealth effects for divesting firms shareholders is examined for the case in which the acquirer is an incumbent management team and for the case when the acquirer is an outside buyer. Using an asymmetric information framework in which management enjoys specific utility from continued control of the operations, the model demonstrates that shareholders of the divesting firm should earn higher expected returns when the unit is sold to an incumbent management team rather than to an outside buyer. The subsequent empirical analysis reveals that this is in fact the case. While the announcement day ARs are statistically significant and positive for divestitures to both incumbent management teams and outside buyers, they are significantly larger when the buyer of the unit is the former. A similar and stronger results are observed for the 6 day period (t=-5 through 0) CARs. The policy implications of the theoretical model and empirical results reported above is that the divesting firms shareholders are not harmed, but receive higher returns when the units are purchased by an incumbent management team. Moreover, legislation to prevent or deter MBOs is not in the best interest of shareholders.

This is the final version. Available on open access from Wiley via the DOI in this record ; We study the effect of public-to-private buyout transactions on investments in innovation using an international sample over the 1997-2017 period. We use patent counts and citations to proxy for the quantity, quality, and economic importance of innovation. Our results are based on time analysis and matched sample regressions. The data indicate that buyouts are associated with a significant reduction in patents and patent citations, including a reduction in radical (i.e., more scientific) patents. When we split the sample into institutional and management buyouts, the negative effect of buyouts is confirmed only for institutional buyouts. This suggests that only institutional buyouts prevent target firms from adopting long-term investments. This finding is confirmed by reductions in innovator employment and innovation efficiency subsequent to going private. Moreover, the data indicate that the negative effect is most prevalent for transactions where the cost of the deal's debt financing is higher than that of the debt postbuyout. We rule out some alternative explanations for these findings, including but not limited to outliers, truncation bias, and endogeneity. ; European Union Horizon 2020 ; National Science Center, Poland

Acquisition by managers of the control of firms in difficulty is taming the unions. Norman Tebbit should devise means of inducing the large public sector unions to buy the nationalised industries.