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The Effects of Leveraged Buyouts on Productivity and Related Aspects of Firm Behavior

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Frank R. Lichtenberg
Donald Siegel

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Abstract

We investigate the economic effects of leveraged buyouts (LBOs) using large longitudinal establishment and firm-level Census Bureau data sets linked to a list of LBOs compiled from public data sources. About 5 percent, or 1100, of the manufacturing plants in the sample were involved in LBOs during 1981-86. We find that plants involved in LBOs had significantly higher rates of total factor productivity (TFP) growth than other plants in the same industry. The productivity impact of LBOs is much larger than our previous estimates of the productivity impact of ownership changes in general. Management buyouts appear to have a particularly strong positive effect on TFP. Labor and capital employed tend to decline (relative to the industry average) after the buyout, but at a slower rate than they did before the buyout. The ratio of nonproduction to production labor cost declines sharply, and production worker wage rates increase, following LBOs. LBOs are production-labor-using, nonproduction-labor- saving, organizational innovations. Plants involved in management buyouts (but not in other LBOs) are less likely to subsequently close than other plants. The average R&D-intensity of firms involved in LBOs increased at least as much from 1978 to 1986 as did the average R&D-intensity of all firms responding to the NSF/Census survey of industrial R&D.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3022.

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Date of creation: Sep 1991
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Handle: RePEc:nbr:nberwo:3022

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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.:
  1. Robert H Mcguckin & George A Pascoe, 1988. "The Longitudinal Research Database (LRD): Status And Research Possibilities," Working Papers 88-2, Center for Economic Studies, U.S. Census Bureau. [Downloadable!]
  2. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May. [Downloadable!] (restricted)
  3. Bronwyn H. Hall, 1988. "The Effect of Takeover Activity on Corporate Research and Development," NBER Chapters, in: Corporate Takeovers: Causes and Consequences, pages 69-100 National Bureau of Economic Research, Inc. [Downloadable!]
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  4. Ann P. Bartel & Frank R. Lichtenberg, 1991. "Technical Change, Learning, and Wages," NBER Working Papers 2732, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  5. Lichtenberg, Frank R, 1988. "The Private R&D Investment Response to Federal Design and Technical Competitions," American Economic Review, American Economic Association, vol. 78(3), pages 550-59, June. [Downloadable!] (restricted)
  6. Stephen S. Roach, 1989. "Living with Corporate Debt," Journal of Applied Corporate Finance, Morgan Stanley, vol. 2(1), pages 19-29. [Downloadable!] (restricted)
  7. Murphy, Kevin M & Topel, Robert H, 1985. "Estimation and Inference in Two-Step Econometric Models," Journal of Business & Economic Statistics, American Statistical Association, vol. 3(4), pages 370-79, October.
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