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Drivers of LBO operating performance: an empirical investigation in Latin America

Aurélie Sannajust (Finance Department, University of Saint Etienne COACTIS, 42023, Saint-Etienne, France)
Mohamed Arouri (EDHEC Business School, France)
Alain Chevalier (Finance Department, ESCP Europe, 75 553 PARIS, France)

European Business Review

ISSN: 0955-534X

Article publication date: 9 March 2015




The purpose of this paper is to extend the research on private equity by studying the drivers of leveraged buyout (LBO) operating performance in Latin America. The authors consider a large set of candidate drivers (financial, governance, macroeconomic and industry variables) and study their effects on performance over short- and long-terms.


To conduct this study, the authors used Capital IQ as a database as well as a hand-collected data set covering LBO in Latin America from 2000 to 2008.


The empirical results show that macroeconomic variables have an important impact on LBO value creation. Governance variables show also that LBO transactions reduce information asymmetries between existing and new management teams. Consequently, a concentrated shareholder structure has a better impact on performance than diluted stockholders. Financial variables present significant effects after the delisting.

Research limitations/implications

The characteristics of the debts included in the balance sheets (maturity for example) are not available in the authors' data basis. A test including this information could bring other elements of explanation. The measure of cumulative abnormal returns around going-private announcements and their impacts on shareholder’s value could also be of interest. This last study has been published for the UK (Wright et al., 2006). Further research should introduce other continents and particularly Asia in the analysis but also comparisons between the Brazil–Russia–India–China–South Africa (BRICS) countries.


This study makes five main contributions. First, the authors construct an LBO sample with emerging markets and specially Latin America. It is the first time that an academic article has been realized. Data are very difficult to obtain to do empirical tests. Latin America is a part of emerging markets, which is an interesting study subject due to their attractiveness in terms of growth of private equity funds. Second, to understand clearly how LBOs create value, the authors construct a sample control to highlight the key factors. Criteria of size, sector of activity and Standard Industrial Classification (SIC) codes were strictly enforced. Third, the authors do not focus on the moment where the transaction is realized like many studies but before and after the delisting. Indeed, they observed, on the one hand, the operating performance between year −1 and year +1 and, on the other hand, the operating performance between year −1 and year +3. Generally, only the market reaction around the acquisition announcement is examined. Post-performance is not considered due to lack of data. Fourth, the authors take into account the macroeconomic effects on performance of LBOs. It is the first examination of the impact of macroeconomic factors on performance of LBOs in Latin America. And fifth, they analyze the impact of going-private decisions on employees.



Sannajust, A., Arouri, M. and Chevalier, A. (2015), "Drivers of LBO operating performance: an empirical investigation in Latin America", European Business Review, Vol. 27 No. 2, pp. 102-123.



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