“…We test these competing propositions by examining a market with very sophisticated investors: the international leveraged buyout (''LBO'') market. The context herein is important, because if a private investor can arrange contracts and use other mechanisms to overcome costs associated with legal inefficiencies, then one would expect that such a sophisticated investor would be a private equity (''PE'') fund manager carrying out large international LBOs (Cao and Lerner, 2009;Nielsen, 2009;Officer et al, 2010;Renneboog 2008, 2009;Ivanov et al, 2011;Masulis and Nahata, 2011;Nahata, 2008). While early cross-country comparisons of earlier stage venture capital (''VC'') and expansion or mezzanine PE deals has considered security design (e.g., Lerner and Schoar, 2005), our analysis is unique in respect of our focus on large PE funds carrying out international LBOs.…”