The likelihood of management involvement, offer premiums, and target shareholder wealth effects: Evidence from the 2002–2007 LBO wave

Kien Cao, Jeffrey Coy and Thuy Nguyen ()

Research in International Business and Finance, 2016, vol. 36, issue C, 641-655

Abstract: This study analyzes the likelihood of management's involvement, the determinants of the offer premium and the market's reaction to the target in order to evaluate the pervasiveness of the agency cost motive and the information asymmetry motive in LBO transactions in the most recent LBO wave. In addition, we consider the role that market volatility plays in the key elements of LBOs. There is strong evidence to suggest that market volatility plays an important role in determining all three elements under investigation due to its effect on the market value of the firm. In addition, management's involvement has a strong positive effect on offer premiums indicating that positive information asymmetry remains to be a motive for management's involvement in LBOs. The agency cost hypothesis is also supported in all three analyses and there is evidence that increased financial distress costs are a concern to private equity groups.

Keywords: Leveraged buyout; Management buyout; Agency cost hypothesis; Information asymmetry hypothesis; Offer premiums; Market volatility (search for similar items in EconPapers)
JEL-codes: G34 (search for similar items in EconPapers)
Date: 2016
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (5)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:riibaf:v:36:y:2016:i:c:p:641-655

DOI: 10.1016/j.ribaf.2015.01.002

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