IDEAS home Printed from https://ideas.repec.org/p/drm/wpaper/2010-6.html
   My bibliography  Save this paper

Exit routes in LBO projects

Author

Listed:
  • Ouidad Yousfi

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," EconomiX Working Papers 2010-6, University of Paris Nanterre, EconomiX.
  • Handle: RePEc:drm:wpaper:2010-6
    as

    Download full text from publisher

    File URL: http://economix.fr/pdf/dt/2010/WP_EcoX_2010-06.pdf
    Download Restriction: no

    More about this item

    Keywords

    LBO; moral hazard; excessive taking risk; financial structure; Exits;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:drm:wpaper:2010-6. 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: (Valerie Mignon). General contact details of provider: http://edirc.repec.org/data/modemfr.html .

    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.

    We have no references for this item. You can help adding them by using 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 RePEc Author Service 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.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.