Buying to Sell: A Theory of Buyouts

Pehr-Johan Norbäck (), Lars Persson and Joacim Tåg

No 817, Working Paper Series from Research Institute of Industrial Economics

Abstract: Private equity owned firms have more leverage, more intense compensation contracts, and higher productivity than comparable firms. We develop a theory of buyouts in oligopolistic markets that explains these facts. Private equity firms are more aggressive in inducing restructuring compared to incumbents since they maximize a trade sale price. The equilibrium trade sale price increases in restructuring not only by increasing the profit of the acquirer, but also by decreasing the profits of non-acquiring firms. Predictions on the exit mode and on when private equity firms can outbid incumbents in the market for corporate control are also derived.

Keywords: Acquisitions; Buyouts; Buy-to-sell; Buy-to-keep; Leveraged buyouts; Private equity; Take-overs; Temporary ownership (search for similar items in EconPapers)
JEL-codes: G24 G32 G34 L10 L20 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-bec
Date: 2010-01-02
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Related works:
Working Paper: Buying to Sell: Private Equity Buyouts and Industrial Restructuring (2012)
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Persistent link: http://EconPapers.repec.org/RePEc:hhs:iuiwop:0817

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