Leveraged buyouts and financial distress

Brian Ayash and Mahdi Rastad

Finance Research Letters, 2021, vol. 38, issue C

Abstract: Do leveraged buyout transactions increase the chance of bankruptcy? While corporate finance theory predicts that such sharp changes in capital structure increase financial distress costs by raising the probability of bankruptcy, previous studies fail to measure the effect. In this letter, we provide evidence that is consistent with the prediction of the theory. Tracking a sample of 484 leveraged buyouts and propensity score matched control firms for 10 years, we find that these transaction increase the probability of bankruptcy for the target firm by approximately 18%.

Keywords: Leveraged buyouts; Private equity; Financial distress; Bankruptcy (search for similar items in EconPapers)
JEL-codes: G32 G33 G34 G38 J08 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (7)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S1544612320301549
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:finlet:v:38:y:2021:i:c:s1544612320301549

DOI: 10.1016/j.frl.2020.101452

Access Statistics for this article

Finance Research Letters is currently edited by R. Gençay

More articles in Finance Research Letters from Elsevier
Bibliographic data for series maintained by Catherine Liu ().