Advanced Search
MyIDEAS: Login to save this paper or follow this series

Financial Capital Structure in LBO Project Under Asymmetric Information

Contents:

Author Info

  • Ouidad Yousfi

    ()
    (MRM - Montpellier Recherche en Management - Université Montpellier II - Sciences et techniques : EA4557 - Université Montpellier I - Université Paul Valéry - Montpellier III - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School)

Abstract

This paper analyzes the link between the financial capital structure in LBO (Leveraged Buyout) acquisitions and the agents' incentives under asymmetric information. We present a static model with three agents: the entrepreneur, the LBO fund and the bank. The first two agents provide complementary and non-observable efforts to enhance the distribution of the project's revenues. Our results provide evidence that there are no debt-equity contracts that solve the double-sided moral hazard problem; however, the project must be financed jointly by the three partners. Moreover, financing the project through a mixture of debt and equity or solely through equity does not improve the incentive to provide efforts. Under taxation, agents provide low levels of efforts, but the entrepreneur is better off if the level of leverage is the highest to take advantage of the tax deductibility of interests.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
File URL: http://hal.archives-ouvertes.fr/docs/00/81/38/78/PDF/Financial_Capital_structure_LBO.pdf
Download Restriction: no

Bibliographic Info

Paper provided by HAL in its series Post-Print with number hal-00813878.

as in new window
Length:
Date of creation: 2012
Date of revision:
Publication status: Published, The IUP Journal of Corporate Governance, 2012, 6, 3, pp.7-35
Handle: RePEc:hal:journl:hal-00813878

Note: View the original document on HAL open archive server: http://hal.archives-ouvertes.fr/hal-00813878
Contact details of provider:
Web page: http://hal.archives-ouvertes.fr/

Related research

Keywords: Corporate Governance Journal; Financial Capital Structure; LBO Projects; Under Asymmetric Information; Leveraged Buyout; Leveraged Management Buyout.;

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
as in new window
  1. Giacinta Cestone & Lucy White, 2003. "Anticompetitive Financial Contracting: The Design of Financial Claims," Journal of Finance, American Finance Association, American Finance Association, vol. 58(5), pages 2109-2142, October.
  2. Catherine Casamatta, 2003. "Financing and Advising: Optimal Financial Contracts with Venture Capitalists," Journal of Finance, American Finance Association, American Finance Association, vol. 58(5), pages 2059-2086, October.
  3. Repullo, R. & Suarez, J., 1998. "Venture Capital Finance: a Security Design Approach," Papers, Centro de Estudios Monetarios Y Financieros- 9804, Centro de Estudios Monetarios Y Financieros-.
  4. Bergemann, Dirk & Hege, Ulrich, 1997. "Venture Capital Financing, Moral Hazard and Learning," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1738, C.E.P.R. Discussion Papers.
  5. Bruno Biais & Catherine Casamatta, 1999. "Optimal Leverage and Aggregate Investment," Journal of Finance, American Finance Association, American Finance Association, vol. 54(4), pages 1291-1323, 08.
  6. Hirao, Yukiko, 1993. "Learning and Incentive Problems in Repeated Partnerships," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 34(1), pages 101-19, February.
  7. Admati, Anat R & Pfleiderer, Paul, 1994. " Robust Financial Contracting and the Role of Venture Capitalists," Journal of Finance, American Finance Association, American Finance Association, vol. 49(2), pages 371-402, June.
  8. Steven N. Kaplan & Per Stromberg, 2009. "Leveraged Buyouts and Private Equity," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 23(1), pages 121-46, Winter.
  9. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, Elsevier, vol. 3(4), pages 305-360, October.
  10. Bengt Holmstrom & Steven N. Kaplan, 2001. "Corporate Governance and Merger Activity in the United States: Making Sense of the 1980s and 1990s," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 15(2), pages 121-144, Spring.
  11. Philippe Desbrières & Alain Schatt, 2002. "The Impacts of LBOs on the Performance of Acquired Firms:the French Case," Working Papers CREGO, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations 1020702, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
  12. Francesca Cornelli & Oved Yosha, 2003. "Stage Financing and the Role of Convertible Securities," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 1-32.
  13. Francesca Cornelli & Oved Yosha, 2003. "Stage Financing and the Role of Convertible Securities," Review of Economic Studies, Wiley Blackwell, Wiley Blackwell, vol. 70(1), pages 1-32, January.
  14. Chan, Yuk-Shee & Siegel, Daniel R & Thakor, Anjan V, 1990. "Learning, Corporate Control and Performance Requirements in Venture Capital Contracts," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(2), pages 365-81, May.
  15. Steven N. Kaplan & Jeremy C. Stein, 1993. "THE EVOLUTION OF BUYOUT PRICING AND FINANCIAL STRUCTURE (OR, WHAT WENT WRONG) IN THE 1980s," Journal of Applied Corporate Finance, Morgan Stanley, Morgan Stanley, vol. 6(1), pages 72-88.
Full references (including those not matched with items on IDEAS)

Citations

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
as in new window

Cited by:
  1. Ouidad Yousfi, 2013. "Does PLS financing solve asymmetric information problems?," Post-Print, HAL hal-00785325, HAL.

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:hal:journl:hal-00813878. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (CCSD).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.