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Le rôle de la dette dans le LBO : une revue de la littérature
[Debt in LBO projects: survey of the literature]

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Listed author(s):
  • Yousfi, Ouidad

Abstract

After 1985, a large number of LBO projects were not able to meet their debt, like for example Federated Department Stores LBO repurchased by Campeau and Gateway LBO repurchased by Macy's. But, the conventional view of LBO transactions is that they are designed to improve the efficiency of the firm. The question raised in this paper is the following : What makes the buyout debt so advantageous ? To answer this question, we provide a survey of the theoretical and empirical literature based on two opposite sides : On the first side, debt is value enhancing (the agency theory, the tax savings theory, signal theory, and the free cash flows theory). On the other side, debt creates private value captured only by new shareholders : The shareholders' gains come from the exploitation of financial market misevaluation, from the deductibility of the debt's interests, and from rent expropriation from workers, suppliers and other corporate stakeholders (the transfer theory).

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File URL: https://mpra.ub.uni-muenchen.de/28708/1/MPRA_paper_28708.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 28708.

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Date of creation: 2007
Date of revision: 2007
Publication status: Published in Euro-Mediterranean Economics and Finance Review 2.2(2007): pp. 234-253
Handle: RePEc:pra:mprapa:28708
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Keywords: Leverage buy out; asymétrie d�information; dette; structure de capital; free cash-�flows;

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Find related papers by JEL classification:
  • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
  • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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  1. David J Ravenscraft & William F Long, 1993. "The Financial Performance of Whole Company LBOs," Working Papers 93-16, Center for Economic Studies, U.S. Census Bureau.
  2. Catherine Casamatta, 2003. "Financing and Advising: Optimal Financial Contracts with Venture Capitalists," Journal of Finance, American Finance Association, vol. 58(5), pages 2059-2086, October.
  3. Steven N. Kaplan, 1993. "The Staying Power Of Leveraged Buyouts," Journal of Applied Corporate Finance, Morgan Stanley, vol. 6(1), pages 15-24.
  4. Servaes, Henri, 1994. "Do Takeover Targets Overinvest?," Review of Financial Studies, Society for Financial Studies, vol. 7(2), pages 253-277.
  5. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
  6. Lichtenberg, Frank R. & Siegel, Donald, 1990. "The effects of leveraged buyouts on productivity and related aspects of firm behavior," Journal of Financial Economics, Elsevier, vol. 27(1), pages 165-194, September.
  7. Stulz, ReneM., 1990. "Managerial discretion and optimal financing policies," Journal of Financial Economics, Elsevier, vol. 26(1), pages 3-27, July.
  8. Andrei Shleifer & Lawrence H. Summers, 1988. "Breach of Trust in Hostile Takeovers," NBER Chapters,in: Corporate Takeovers: Causes and Consequences, pages 33-68 National Bureau of Economic Research, Inc.
  9. Bruton, Garry D. & Keels, J. Kay & Scifres, Elton L., 2002. "Corporate restructuring and performance: An agency perspective on the complete buyout cycle," Journal of Business Research, Elsevier, vol. 55(9), pages 709-724, September.
  10. Leland, Hayne E & Pyle, David H, 1977. "Informational Asymmetries, Financial Structure, and Financial Intermediation," Journal of Finance, American Finance Association, vol. 32(2), pages 371-387, May.
  11. John Easterwood & Anju Seth, 1993. "Strategic Restructuring In Large Management Buyouts," Journal of Applied Corporate Finance, Morgan Stanley, vol. 6(1), pages 25-37.
  12. Douglas W. Diamond, 1984. "Financial Intermediation and Delegated Monitoring," Review of Economic Studies, Oxford University Press, vol. 51(3), pages 393-414.
  13. DeAngelo, Harry & DeAngelo, Linda & Rice, Edward M, 1984. "Going Private: Minority Freezeouts and Stockholder Wealth," Journal of Law and Economics, University of Chicago Press, vol. 27(2), pages 367-401, October.
  14. Warga, Arthur & Welch, Ivo, 1993. "Bondholder Losses in Leveraged Buyouts," Review of Financial Studies, Society for Financial Studies, vol. 6(4), pages 959-982.
  15. Diamond, Douglas W., 1993. "Seniority and maturity of debt contracts," Journal of Financial Economics, Elsevier, vol. 33(3), pages 341-368, June.
  16. Miller, Merton H, 1977. "Debt and Taxes," Journal of Finance, American Finance Association, vol. 32(2), pages 261-275, May.
  17. Demsetz, Harold, 1983. "The Structure of Ownership and the Theory of the Firm," Journal of Law and Economics, University of Chicago Press, vol. 26(2), pages 375-390, June.
  18. Ippolito, Richard A & James, William H, 1992. " LBOs, Reversions and Implicit Contracts," Journal of Finance, American Finance Association, vol. 47(1), pages 139-167, March.
  19. Muscarella, Chris J & Vetsuypens, Michael R, 1990. " Efficiency and Organizational Structure: A Study of Reverse LBOs," Journal of Finance, American Finance Association, vol. 45(5), pages 1389-1413, December.
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