A Theory of LBO Activity Based on Repeated Debt-Equity Conflicts

摘要: We develop a theory of leveraged buyout (LBO) activity based on two elements: the ability private equity-owned firms to borrow against their sponsors' reputation with creditors and externalities in reputations due competition club formation. In equilibrium, sources value creation LBOs, operational improvements financing, are complements. Moreover, sponsors that never add cannot through financing either. Club deals beneficial ex post by allowing low-reputation bidders high valuations from high-reputation low valuations, but they can destroy reducing bidders' investment reputation. Unlike leverage independent firms, driven only firm-specific factors, is economy-wide sponsor-specific factors.