Abstract

This article examines the leveraged buyout as a tool for corporate restructuring and focuses on the strategic impact of leveraged buyouts on a firm's corporate objectives. The article documents the increased frequency and size of large leveraged buyouts over the period of 1978-1985. A leveraged buyout brings about four changes in the firm: changes in ownership structure, changes in capital structure, changes in asset structure, and changes in organizational structure. The changes in ownership structure involve significant increases in the stakes of managers and large holdings by the buyout specialist's fund. In addition, leveraged buyouts are accompanied by a large increase in debt financing. These changes in ownership and capital structure influence the strategic decisions made by the post-buyout firm. In the post-buyout firm, asset acquisition and divestment decisions and organization structure changes are aimed towards creating shareholder value and maintaining debt coverage.