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Is it Free Cash Flow, Tax Savings, or Neither?An Empirical Confirmation of Two Leading Going-private Explanations:The Case of ReLBOs

Arman Kosedag and William R. Lane
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Arman Kosedag: Sabanci University, Turkey,

Journal of Business Finance & Accounting, 2002, vol. 29, issue 1&2, 257-271

Abstract: Firms which 'go private' via a leveraged buyout (LBO) retain the option to 'go public' again, a process known as a reverse LBO transaction. This paper examines the rarer phenomenon of reLBOs; that is, the practice of going private via leveraged buyout, reobtaining public status through a new initial public offering, and then going private a second time. Among the several alternative hypotheses explaining LBOs, we focus on two prominent ones - free cash flow and tax savings - to explain reLBOs. With a sample of 21 reLBO firms, we find no empirical support for the free cash flow hypothesis but detect a significant relationship between the decision to go private for the second time and the tax savings potential of the firm. Copyright Blackwell Publishers Ltd 2002.

Date: 2002
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