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

Kien Cao, Jeffrey Michael Coy, Thuy Nguyen

Research output: Contribution to journalArticle

3 Citations (Scopus)

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.

Original languageEnglish (US)
Pages (from-to)641-655
Number of pages15
JournalResearch in International Business and Finance
Volume36
DOIs
StatePublished - Jan 1 2016

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Wealth effect
Shareholder wealth
Premium
Agency costs
Information asymmetry
Market volatility
Market value
Market reaction
Costs
Private equity
Financial distress

All Science Journal Classification (ASJC) codes

  • Business, Management and Accounting (miscellaneous)
  • Finance

Cite this

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