Leveraged buyouts and bond credit spreads

Eisenthal-Berkovitz, Yael; Feldhütter, Peter; Vig, Vikrant

doi:10.1016/j.jfineco.2019.07.007

Cited by 19 publications

(6 citation statements)

References 43 publications

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“…This result contradicts Bharath and Dittmar (2010) and Cai, Balachandran, and Dempsey (2011), who find that tangible asset level positively affects the likelihood of being a takeover target. Eisenthal-berkovitz, Feldhütter, and Vig (2020) find that creditors demand a higher yield to compensate the LBO target with lower covenants value.…”

Section: Partial Logistic Regression Resultsmentioning

confidence: 86%

A Model to Identify the Potential Target for Leveraged Buyout

Hermawan,

Tanuwijaya,

Aditama

et al. 2022

J. Keuang. dan Perbank.

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This study aims to find a model based on agency theory to identify the target firms of leveraged buyout (LBO) transactions one year ahead. The likelihood of a firm being a target in an LBO transaction is estimated using logistic regression. The dependent variable is defined as one for the LBO target and zeroes otherwise. The independent variables are a firm's financial characteristics related to agency problems: leverage, tangible assets, free cash flow, market-to-book value ratio, profitability, and revenue growth. The sample is public-to-private LBO transactions in the United States from 2009 to 2019. We find that a firm with high leverage and free cash flow is more likely to become an LBO target. The findings are consistent with the agency theory. The management uses firm high free cash flow to gain more debt to pursue their benefits which is detrimental to shareholders' interest. Contrary to previous research, the firm's tangible asset does not increase the likelihood of becoming an LBO target.

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Section: Partial Logistic Regression Resultsmentioning

confidence: 86%

A Model to Identify the Potential Target for Leveraged Buyout

Hermawan,

Tanuwijaya,

Aditama

et al. 2022

J. Keuang. dan Perbank.

View full text Add to dashboard Cite

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“…The most common method for investigating dynamic capital structure choice in the empirical literature is regression analysis. Structural models that embed endogeneity concerns are becoming common in empirical corporate finance (Eisenthal-Berkovitz, Feldhutter & Vig, 2020). Looking at corporate capital structure choice through the lens of a dynamic structural model helps to address questions that may be difficult to tackle in a static framework.…”

Section: Methodological Reviewmentioning

confidence: 99%

The Mystery of Zero-Leverage Firms: Evidence from Nigerian Quoted Firms

Paseda

Adedeji

2020

Acc. Fin. Review

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Objective – Empirical finance literature has added a new twist to the debt conservatism puzzle within the broader capital structure puzzle, namely the phenomenon of zero leverage. Motivated by Strebulaev and Yang (2013), this study investigates the attributes of zero leverage firms in Nigeria in an attempt to add a developing country perspective to the zero-leverage phenomenon observed in firms. Methodology/Technique – The non-financial corporations quoted on the Nigerian Stock Exchange (NSE) for the period 1999-2014 constitute the population of the study. Firms with market leverage ratios ranging from 0% to 5% met the criteria for inclusion. Panel data regression techniques such as the generalized method of moments (GMM) and two stage least squares (2SLS) were used in the study. Findings – Zero leverage is persistent across 13 industries and is a declining function of the marginal tax rate, firm size, profitability, and liquidity. Firms that follow a zero-leverage (and almost zero-leverage) policy have higher growth opportunities, more tangible assets, pay higher dividends, are older, and have access to debt markets. Non-debt tax shields do not explain zero-leverage behaviour. Originality/Value – This study addresses the gaps related to the questions of why and how firm-specific attributes affect zero leverage behaviour among Nigerian quoted firms. It sheds light on the economic mechanisms driving zero leverage phenomenon within firms with high debt capacity. Type of Paper: Empirical. JEL Classification: G30, G32. Keywords: Capital Structure; Zero Leverage Puzzle; Tax Benefits; Debt Capacity; Financing Decisions. Reference to this paper should be made as follows: Paseda, O; Adedeji, B.S. 2020. The Mystery of Zero-Leverage Firms: Evidence from Nigerian Quoted Firms, Acc. Fin. Review 5 (2): 44 – 71. https://doi.org/10.35609/afr.2020.5.2(2)

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“…Fang et al (2013) found that banks take advantage of credit market booms by increasing their equity investments in PE firms along with their (debt) financing activities, which increases risk and exacerbates the cyclicality of PE investments and the credit market itself. Eisenthal-Berkovitz, Feldhütter, and Vig (2020) found that outstanding bonds (and thus bondholders) experience significant losses when an LBO is announced. They suggest this is because buyouts commonly correspond to a major change in the risk profile of the target (since it takes on a high debt load post-buyout).…”

Section: Outcomes: What Are the Outcomes Of Private Equity Activities?mentioning

confidence: 99%

Private Equity: Antecedents, Outcomes, Mediators, and Moderators

McGrath

Nerkar

2022

Journal of Management

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As private equity’s financial heft and influence on the business landscape has intensified, so too has scholarly interest in the phenomenon. We review recent progress in private equity research, with a focus on the private equity industry’s later-stage buyout segment. To synthesize and integrate current findings, we construct a framework that encompasses not only antecedents and outcomes of private equity’s activities, but also mediators and moderators of the relationships that drive these outcomes. Based upon the gaps and learning opportunities that are surfaced by this framework, we develop recommendations for future private equity research. The proposed research agenda is particularly germane to management scholars, whose theories and perspectives have thus far been productively, yet relatively sparingly, applied in private equity research.

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Leveraged buyouts and bond credit spreads

Cited by 19 publications

References 43 publications

A Model to Identify the Potential Target for Leveraged Buyout

A Model to Identify the Potential Target for Leveraged Buyout

The Mystery of Zero-Leverage Firms: Evidence from Nigerian Quoted Firms

Private Equity: Antecedents, Outcomes, Mediators, and Moderators

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