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This chapter investigates whether and to what extent tax benefits affect the likelihood of firms undertaking leveraged buyout (LBO) transactions.

With an identified sample of LBO firms and similar non-LBO counterparts, this chapter utilizes staggered changes in state corporate income tax rates as exogenous shocks and adopts a Logistic regression to analyze how these tax changes affect firms' probability of engaging in LBOs.

Firms are more likely to engage in LBOs after increases in corporate income tax rates. Specifically, the increase in the likelihood of firms undertaking LBOs following tax increases is between 6.9% and 12.9%. We also find that this positive relation is more pronounced for firms with higher levels of return on assets (ROA) and marginal tax rates (MTR). Finally, we report that the mean value of tax benefits accounts for between 28.5% and 170% of the premium paid to pre-buyout shareholders.

This chapter provides strong evidence that tax benefits constitute an important source of value creation in LBOs and adds to the debate regarding the role of tax benefits in LBOs.

The purpose of this paper is to examine the informational asymmetry (informational advantage of managers) in leveraged buyout (LBO) transactions.

Unlike previous studies of informational asymmetry in LBOs, this research uses a set of reverse‐LBO and re‐LBO firms. The paper proposes and empirically tests three hypotheses that draw on the informational advantage of managers in LBOs. Specifically, the value gain (VG) realized by the reverse‐LBO firms is compared with that realized by a control sample of firms; the wealth distribution between managers and pre‐buyout shareholders is studied; and, finally, the performance of re‐LBO firms relative to reverse‐LBO firms is evaluated.

The results do not support the view that managers use buyouts to exploit their informational advantage. Specifically; the performance of LBO firms under the private ownership is comparable to those of matching public firms; the management team's return in a LBO deal is not significantly more than pre‐buyout shareholders’ return; and repeating reverse‐LBO firms (re‐LBOs) do not necessarily perform better than the non‐repeating reverse‐LBO firms.

While reverse‐LBOs have been investigated to some extent in the prior literature, studies on re‐LBOs are quite scant – although these transactions offer a new and interesting avenue to examine the motivations behind LBOs in general. The use of the entire LBO − reverse‐LBO − re‐LBO cycle in testing the informational advantage of managers is a novelty. It is hoped that re‐LBOs will attract the amount of attention they deserve as these firms may offer interesting means to reinvestigate commonly debated theories of corporate finance.

The traditional discounted cash flows (DCF) valuation procedure used by financial analysts assumes that firms maintain a policy of fixed debt. However, empirical evidence suggests that many firms rebalance their debt. This paper seeks to explore the implication of this discrepancy for valuation of firms that undergo a capital structure change.

The approach taken is both theoretical and empirical.

The authors show how the valuation process should be modified for firms that are expected to rebalance their debt and demonstrate the distortion in value that results if the traditional DCF valuation procedure is used instead. Furthermore, they illustrate the significance of their results using a sample of the largest largest leveraged buyouts of the current decade.

To the authors' knowledge, this is the first investigation into this issue.

During the last five years, Safeway and Fairchild Industries sold major divisions to existing management. Carl Icahn acquired a majority interest in TWA. And, entrepreneur Ted Turner attempted unsuccessfully to acquire CBS. The common factor in these transactions? The leveraged buyout (LBO).

The purpose of this exploratory study is to gain a better understanding of the motivations behind private equity (PE) activities in Australia.

This paper reports findings arising from face‐to‐face semi‐structured interviews with individuals representing stakeholders in the market for private equity; namely, PE partners and finance professionals. Interviews were conducted in two stages, during the pre‐Global Financial Crisis (GFC) period (2007‐2008) and the post‐GFC period (2012).

In general, the stakeholders interviewed perceive that the motivations behind PE bids are not well understood, and they highlight the need for more education. They state that PE enables a company's management to make decisions more promptly; capture opportunities more effectively; reduce paperwork for executives; provide no accountability to a broad investor base; and most importantly create value for a business, as the ownership is more closely involved with the management in the day‐to‐day operations of the business. According to the interviewees, since the GFC, PE firm reputation and track record are considered to be even more crucial than before the GFC, as debt providers in particular have become more wary when lending.

The findings have implications for the agency relationship model. The principals' role might appear to be more tightly aligned with that of the agent, and so are their motivations, thus reducing monitoring costs, but post‐GFC interview responses indicate that this might not necessarily be the case. Concerns over empire building and gains through transaction costs were raised. The paper concludes by drawing from the insights gained by the authors from the interview data. Although it is only a small part of the economy's Gross Domestic Product, PE activity has helped Australia become a more competitive business economy.

This case considers the buyout of Panera Bread from the perspective of a private equity fund. In early 2017, KLG Managing Director Tom Denning is considering a leveraged buyout of Panera Bread, a rapidly growing fast-casual restaurant company. A surprising Bloomberg News story signals that the deal process is broadening and KLG will have to act quickly if it hopes to buy Panera Bread. Students assume the role of Tom Denning as he prepares an investment recommendation for KLG's investment committee. In doing so, students are required to consider a very large and expensive investment. Students are challenged to create an investment recommendation by performing due diligence, determining additional questions to ask, and pricing a buyout bid that incorporates an optimal capital structure and meets KLG's return requirements. The Panera Bread case is designed to give students insight into the private equity investment process.

The purpose of this paper is to compare the governance structures of two distinctive governance forms: the family firm and the leveraged buyout (LBO). The paper also explores the relative performance of these two organizational forms over the course of the economic business cycle.

The paper provides a theoretical treatment of the family firm and the LBO using the stewardship perspective and agency theory. The analysis anticipates the board structure for each organizational form and relates family firm and LBO governance to performance over the business cycle.

From a conceptual treatment, the family‐owned concern exhibits board characteristics reflecting the longer‐term orientation of the firm, with boards empowered to include non‐economic, as well as economic, goals. LBOs are structured to maximize shareholder value over a shorter time horizon. LBOs may take advantage of expansionary environments whereas family firms may be better prepared for economic down‐cycles.

The paper takes a holistic approach to contrasting two organizational forms that fit their respective theoretical frames and compares some of their more salient governance characteristics and performance over the business cycle.

Managers and boards can structure governance to manage the business cycle. Stakeholders can selectively engage firms that portray vital governance characteristics for their benefit and may also pressure boards and top management to make necessary governance improvements.

The paper offers an introductory comparison between family firms and LBOs in terms of governance and managing the firm over the business cycle. This paper makes the case that some organizational forms are better suited to certain types of economic climates.

The financial restructuring of the US department store industry is commonly interpreted as a time of corporate excess, value‐destruction and ultimately collapse. The purpose of this paper is to re‐analyse these events using qualitative methods to understand the background to the leveraged transactions and to review the implications that their failure had for the longer term strategy and structure of the US department store industry.

The research is based on two extensive periods of fieldwork in the US when the author interviewed (n=28) many of the protagonists of the 1980s restructuring period and those who inherited the management of the bankrupt businesses in the 1990s. By adopting a qualitative perspective, we are accessing social and human perspectives of these developments as well as their wider effects.

The leveraged transactions were conceptually an appropriate attempt to centralise the structure of the industry but their execution was not possible under such extreme financial distress. However, bankruptcy protection provided the environmental conditions to realise the benefits of more efficient strategic and subsequent wide‐ranging structural change.

This research differs from economistic readings of the period that analyse changes in market value of the constituent firms and the more reactionary journalistic accounts. The paper re‐casts the failed financial restructuring in a new light, underlining the regenerative effects of Chapter 11 Bankruptcy Protection in promoting firm revival, alongside visionary leadership.

The purpose of this paper is to investigate the influence of gender diversity on the boardroom and in top management positions on the risk profile (RP) of acquiring banks.

To estimate the effect of mergers and acquisitions (M&A) in the RP of the acquirer, the authors will use the same methodology adopted by Vallascas and Hagendorff (2011), this method compares the variation of the RP of the acquirer to the level risk of control banks. To investigate how merger-related risk changes are affected by gender diversity, the authors use a linear regression.

The results show that, on average, bank mergers do not significantly affect the RP of the acquiring bank. However, the authors found that the proportion of women in the board standing reduces the RP of the acquiring bank. Overall, the authors observe evidence that the appearance of a female in top management is associated with lower bank risk. Moreover, the authors conclude that the relationship between the presence of at least three women on the board and the default risk of the acquiring bank is negative.

This finding suggests that in the M&A transactions, female directors are considerably more conservative than their male counterparts. Thus, the authors confirm the postulate that women are more risk averse and less overconfident than their male counterpart. The conclusions are of particular significance for the banking industry. The authors provide some support for the view that regulators should favor gender quotas in the board management of banks to reduce risk-taking behavior.

The paper aims to look at the growth of private equity and to consider the concerns that the public and media have raised, as well as the response to these concerns.

This article is an opinion piece based on current and recent trends.

It is difficult to ascertain whether the publics’ concerns are real or are media lead. The tax changes have also caused concern in the private equity business with a belief that they will drive investors out of the UK market and reduce the competitiveness and attractiveness of the UK for the private equity investor.

The key may involve more transparency in the private equity industry as this may help resolve some of the growing public and political distrust. The paper also suggests that to attain a better understanding in this area, the competitive position of the UK market needs to be recognised.