Impact of leverage buyouts on target companies

Abstract

This research studies the impact of LBO buyers' operation on target companies, mainly from the perspective of financial indicators and stock performance after a subsequent IPO. The results show that, on average, target companies show weaker profitability, lower operational efficiency and higher solvency risk. LBO buyers' operation is also shown to improve target companies' cash flow condition. After a subsequent IPO, target companies' stocks tend to under-perform the market during the first year, but three-year returns outperformed the market, on average.