The Reverse LBO Decision and Firm Performance: Theory and Evidence

Francois Degeorge () and Richard Zeckhauser

Journal of Finance, 1993, vol. 48, issue 4, 1323-48

Abstract: The authors investigate the transition from private to public ownership of companies that had previously been subject to leveraged buyouts. They 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. The authors find empirical evidence of this phenomenon by studying sixty-two reverse leveraged buyouts that went public between 1983 and 1987. The market appears to anticipate this pattern. Copyright 1993 by American Finance Association.

Date: 1993
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