The Reverse LBO Decision and Firm Performance: Theory and Evidence

  • Author(s): FRANÇOIS DEGEORGE, RICHARD ZECKHAUSER
  • Published: Apr 30, 2012
  • Pages: 1323-1348
  • DOI: 10.1111/j.1540-6261.1993.tb04756.x

ABSTRACT

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.

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