Premium
The Reverse LBO Decision and Firm Performance: Theory and Evidence
Author(s) -
DEGEORGE FRANÇOIS,
ZECKHAUSER RICHARD
Publication year - 1993
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.1540-6261.1993.tb04756.x
Subject(s) - leveraged buyout , information asymmetry , debt , equity (law) , business , empirical evidence , private equity , phenomenon , accounting , financial economics , economics , monetary economics , finance , philosophy , physics , epistemology , quantum mechanics , political science , law
We investigate the transition from private to public ownership of companies that had previously been subject to leveraged buyouts (LBOs). We show that the information asymmetry problem firms face when they go to public markets for equity, as well as behavioral and debt overhang effects, will produce a pattern in which superior performance before an offering should be expected, with disappointing performance subsequently. We find empirical evidence of this phenomenon by studying 62 reverse LBOs that went public between 1983 and 1987. The market appears to anticipate this pattern.