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Exit routes in LBO projects

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  • Ouidad Yousfi

    (EconomiX - EconomiX - UPN - Université Paris Nanterre - CNRS - Centre National de la Recherche Scientifique)

Abstract

The current paper studies the Financial structure in buyout firms under moral hazard due to unobservable efforts and an excessive risk-taking. The choice of the exit route may lead to agency conflicts between the entrepreneur and the LBO firm: the former may take very risky decisions to increase the probability of IPO exit. If the target is taking public, he gets a non transferable and private benefit. The opportunistic behavior of the entrepreneur decreases the probability of sale exit; the preferred exit route of the LBO firm. Without moral hazard, there are many ways to finance the project and the two agents exert strictly positive efforts. With moral hazard, the entrepreneur, the LBO firm and the bank must finance jointly the buyout. Financing the project through standard debt-equity contracts does not implement the first-best solution. Only a set of projects can be financed through both the LBO fund and the bank at the macroeconomic level. If the entrepreneur is not wealthy enough, her project is not undertaken.

Suggested Citation

  • Ouidad Yousfi, 2010. "Exit routes in LBO projects," Working Papers hal-04140925, HAL.
    • Handle: RePEc:hal:wpaper:hal-04140925
    Note: View the original document on HAL open archive server: https://hal.science/hal-04140925
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    References listed on IDEAS

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