The origin, ownership and use of cash flows in leveraged buyouts

Brian Ayash

The Quarterly Review of Economics and Finance, 2020, vol. 77, issue C, 286-295

Abstract: This paper uses cash flow statements to study leveraged buyouts between 1980 and 2006 of large publicly traded U.S. firms by private equity funds. Presenting the origin, ownership and use of cash in these transactions, I show that once they are controlled by private equity funds, these firms exhibit a significant decline in investment and growth. I also use cash flow statements to evaluate the free cash flow proxies frequently used in the literature and show that the gains in free cash flows are due to a significant reduction in investment post-LBO and not operating improvements. The leveraged capital structure forces a change in investment philosophy, which is reflected in lagged declines in growth rates.

Keywords: Leveraged buyouts; Growth equity buyouts; Investment; Private equity (search for similar items in EconPapers)
JEL-codes: G11 G12 G31 L11 L22 R10 R11 (search for similar items in EconPapers)
Date: 2020
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Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:quaeco:v:77:y:2020:i:c:p:286-295

DOI: 10.1016/j.qref.2019.10.004

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