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Leveraged Buy Out: Does the arrival of new targets increase the agents' incentives?

Author

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  • Ouidad Yousfi

    (MRM - Montpellier Research in Management - UM1 - Université Montpellier 1 - UPVM - Université Paul-Valéry - Montpellier 3 - UM2 - Université Montpellier 2 - Sciences et Techniques - UPVD - Université de Perpignan Via Domitia - Groupe Sup de Co Montpellier (GSCM) - Montpellier Business School)

Abstract

This paper studies the fiancial capital structure in Leveraged Buy Out (LBO) acquisitions. It analyzes how the arrival of new targets improves the agents' incentives when there is asymmetric information. The entrepreneur and the LBO investor exert unobservable e fforts to enhance the productivity of their project. We show that there are no debt-equity contracts that induce the entrepreneur and the LBO investor to provide the first-best levels of e fforts. The decision of the LBO fund to exit prematurely the entrepreneur's project increases the agents' incentives. We also fi nd that the entrepreneur's incentives increase with the amount of debt and when the LBO investor promises her the whole compensation cost.

Suggested Citation

  • Ouidad Yousfi, 2012. "Leveraged Buy Out: Does the arrival of new targets increase the agents' incentives?," Post-Print hal-00813910, HAL.
    • Handle: RePEc:hal:journl:hal-00813910
    as

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    Cited by:

    1. Ouidad Yousfi & M. Kabir Hassan, 2014. "Moral hazard in Islamic profit–loss sharing contracts and private equity," Chapters, in: M. Kabir Hassan & Mervyn K. Lewis (ed.), Handbook on Islam and Economic Life, chapter 18, pages iii-iii, Edward Elgar Publishing.
    2. Ouidad Yousfi, 2013. "Does PLS financing solve asymmetric information problems?," Post-Print hal-00785325, HAL.

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