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Efficiency and Organizational Structure: A Study of Reverse LBOs
Author(s) -
MUSCARELLA CHRIS J.,
VETSUYPENS MICHAEL R.
Publication year - 1990
Publication title -
the journal of finance
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 18.151
H-Index - 299
eISSN - 1540-6261
pISSN - 0022-1082
DOI - 10.1111/j.1540-6261.1990.tb03720.x
Subject(s) - leverage (statistics) , profitability index , organizational structure , capital structure , business , corporate governance , industrial organization , accounting , cost structure , leveraged buyout , organizational economics , monetary economics , finance , economics , microeconomics , management , debt , private equity , machine learning , computer science
This paper is a report on 72 firms which went public since 1983 but previously underwent a full or divisional LBO. Accounting measures of performance reveal significant improvements in profitability which resulted mainly from these firms' ability to reduce costs. Firms experience dramatic increases in leverage at the LBO, but the leverage ratios are gradually reduced. The evidence is consistent with the hypothesis that the change in the governance structure of these firms towards more concentrated residual claims created a new organizational structure which is more efficient than its predecessor.