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Using a large sample of leveraged loans, we provide evidence that, despite having fewer creditor control rights, covenant-lite (Cov-Lite) loans have similar recovery rates and significantly lower spreads than loans with maintenance covenants. We find that the propensity to borrow Cov-Lite is related to various proxies for the reputational capital of a borrowing firm's private equity sponsor. We construct a simple model to illustrate the relationship between reputational capital, covenants, and loan spreads in the leveraged loan market. Our model illustrates how reputational capital can substitute for covenants in mitigating agency costs of debt, leading to lower loan spreads for Cov-Lite loans. [ABSTRACT FROM AUTHOR]

We investigate a potential primary effect of leveraged buyouts (LBOs) by private equity (PE) on peers in the same industry using data on US public‐to‐private LBO transactions between 1985 and 2016. We use a network‐based instrumental variable approach to account for potential endogeneity concerns. Our findings indicate that the LBOs by PEs matter for peer firms' performance and corporate strategy relative to nonpeer firms. Our study supports a learning factor hypothesis, but we find no evidence to support the conjecture that peers lose due to the increased competitiveness of the LBO target. [ABSTRACT FROM AUTHOR]

Purpose: This study aims to analyze the effect of cognitive load and social value orientation on managers' preferences when they face with two types of restructuring choices in financially distressed firms: the first belonging to the family of organizational restructuring (massive layoffs) and the second to the family of financial restructuring (debt increases). Design/methodology/approach: The authors investigate experimentally the impact of managers' cognitive load and social value orientation on the decision to restructure leveraged buyout (LBO) firms in financial distress by using either massive layoffs or debt increases. Findings: By investigating the impact of managers' cognitive load and social value orientation on the restructuring decision of an LBO firm in financial distress, the research reveals that, on average, cognitively loaded managers prefer massive layoffs over increased debt levels. The massive layoffs seemingly provide a relatively easier way to avoid conflict with influential, residual claimants. In contrast, social value–oriented managers actively avoid massive layoffs and prefer to increase debt. Research limitations/implications: These results imply that the performance mechanisms emphasized to improve agency relations, for example, in LBOs, have their own limitations during periods of financial distress. This study shows that one of these limits is related to cognitive distortions and personality traits. Originality/value: In this research, the originality lies in understanding how managers' internal factors affect their restructuring decision-making, in the case of LBO firms in financial distress. [ABSTRACT FROM AUTHOR]

The article "CEO bonus plans—And how to fix them" explores the flaws in CEO and executive bonus plans, advocating for improvements to avoid counterproductive incentives that may harm long-term company value. It emphasizes the importance of using performance measures, thresholds, and pay-performance relations in bonus plans, while cautioning against the negative impacts of non-linear plans, risk-taking incentives, and inappropriate performance targets. The text also discusses the significance of accounting profit and ratio performance measures in CEO compensation, as well as the role of economic profit as a value-based measure. Additionally, it addresses the banking bonus culture and its connection to the financial crisis, offering recommendations for enhancing executive bonus plans through effective performance measures, benchmarks, and pay systems. [Extracted from the article]

The article discusses the influential career of Michael Jensen, a renowned scholar in financial theory, who co-authored the seminal paper "Theory of the Firm" in 1976. Jensen's wide-ranging research interests included mutual fund performance, stock market efficiency, and corporate governance. The article also explores Jensen's views on CEO pay, corporate objectives, and the role of private equity in increasing corporate values. Jensen's contributions to the theory of the firm are highlighted, emphasizing his evolving perspectives on the public corporation and management practices over the years. [Extracted from the article]

The text discusses the impact of fundamental technological, political, regulatory, and economic forces on the worldwide competitive environment, akin to the industrial revolution of the 19th century. It highlights the role of capital markets in eliminating excess capacity through mergers, acquisitions, and leveraged buyouts. The paper emphasizes the failure of internal control systems in addressing the challenges posed by modern industrial changes, advocating for reforms in U.S. corporate control mechanisms. The document also suggests emulating features of venture capital and LBO firms to enhance the efficiency of large public companies. [Extracted from the article]

The text discusses the impact of leveraged buyouts (LBOs) on corporate control transactions in the U.S. economy, highlighting the role of active investors in monitoring management and driving strategic direction. It explores the benefits and controversies surrounding LBOs, emphasizing the real increases in productivity and value for shareholders. The text also delves into the use of high leverage in LBOs, the privatization of bankruptcy, and the potential benefits of removing tax-induced biases towards debt. Overall, the text provides insights into the evolving organizational forms and incentives in corporate finance, emphasizing the need for further research and policy considerations in this area. [Extracted from the article]

The document summarizes a roundtable at Baylor University that delves into topics such as corporate mission, CEO pay, and investor relations. Panelists discuss the social responsibility of corporations, the impact of earnings guidance on investments, CEO compensation, and the success of private equity in the U.S. They stress the importance of balancing shareholder and stakeholder interests, building trust with investors, and avoiding short-term earnings management. The text also explores accounting processes, challenges in financial reporting, and the significance of targeting specific investors for public companies. Overall, the discussion highlights the importance of long-term corporate strategy, transparency, and value creation for public companies. [Extracted from the article]

The article discusses Nicholas Lemann's book "Transaction Man" and its portrayal of Michael Jensen's views on corporate governance and the American economy. It highlights Jensen's belief in the importance of capital markets in monitoring and disciplining corporate managers, as well as his advocacy for private equity and the market for corporate control. The article also addresses Lemann's criticisms of Jensen's work and his focus on the social consequences of corporate oversight failures. Additionally, it touches on the role of financial markets in economic progress and poverty reduction, as well as Jensen's shift towards emphasizing integrity as a factor of production. The article concludes by discussing Lemann's exploration of pluralism in the political and economic spheres, contrasting it with Jensen's perspective on stakeholder balancing and enlightened value maximization. [Extracted from the article]

The article reflects on the significant contributions of Michael Jensen to the field of corporate finance, highlighting his impact on theory, practice, and the US economy. Jensen's work focused on agency costs, corporate governance, and organizational design, emphasizing the importance of aligning managerial interests with shareholder value. His research, particularly on topics like leveraged buyouts and corporate leadership, continues to influence the field. The article also touches on Jensen's personal background and his legacy within the academic finance profession. [Extracted from the article]

Private equity has rapidly enlarged its presence in the health care sector, expanding its investment targets from hospitals and nursing facilities to physician practices. The incursion of private equity is the latest manifestation of a long trend toward the corporatization and financialization of medicine. Private equity pools investments from large private investors to buy controlling stakes in companies through leveraged buyouts or similar arrangements that use the companies' own assets to finance debt. These investors seek to earn handsome profits by rapidly increasing revenues before selling off the investment. Private equity's incursion into health care is especially concerning. The drive for quick revenue generation threatens to increase costs, lower health care quality, and contribute to physician burnout and moral distress. These harms stem from market consolidation, overutilization and upcoding, constraints on physicians' clinical autonomy, and compromises in patient care. Policymakers attempting to counter these threats can barely keep up. Like a cloud of locusts, private equity moves so quickly that by the time lawmakers become aware of the problem and researchers study the effects, private equity has moved on to other investment targets. While it remains unclear whether private equity investment is fundamentally more threatening to health policy than other forms of acquisition and financial investment--whether by publicly traded companies, conglomerate health systems, or health insurers-private equity presents a heightened threat of commercialization. Even if private equity is not uniquely harmful, it is extremely adept at identifying and exploiting market failures and payment loopholes. The emphasis on short-term returns and exit, the heavy reliance on debt, and the insulation from professional and ethical norms make private equity investors more avid to exploit revenue opportunities than institutional repeat players. Thus, this Article’s central claim is that the influx of private equity into health care poses sufficient risks to warrant an immediate legal and policy response. Public policy should primarily target market failures and payment loopholes and only secondarily curb private equity investment per se. The good news is that we already have many tools under federal and state law with the potential to address the harms of commercialization. These can be used or sharpened to address the particular concerns raised by private equity’s incursion into physician markets. Key tools include antitrust oversight, fraud and abuse enforcement, and state laws regulating the corporate practice of medicine and the terms of physician employment. In some instances, legislative or regulatory action may be needed to adapt existing laws. In other instances, new laws may be needed to close payment loopholes or correct market distortions. A leading example is the recent No Surprises Act, which curtails surprise outof- network medical billing. While the Article lays out a roadmap for additional legal and policy actions to protect the health system from the acute risks of private equity, these are patches rather than systemic solutions. If these patches fail to stave off the incessant march toward commercialization of health care, we may see renewed calls to fundamentally rethink the market orientation of the U.S. health system. [ABSTRACT FROM AUTHOR]

Our paper provides a contribution to the literature on peer effects in leveraged buyouts and delivers an explanation for the seemingly contradicting findings in the existing literature. We find that the average peer announcement CAR amounts to −1.98%. A buyout may reveal private information about peer value and can also change in the competition within the buyout target industry. Our identification strategy to examine the information and competition channels relies on two quasi‐natural experiments, which generate exogenous variation in the information and competition environments. In addition, we analyze various mechanisms within these two channels by considering the cross‐section of peer CARs and by running additional tests. Our results support the revaluation and the competitive pressure hypotheses. [ABSTRACT FROM AUTHOR]

This is mainly a systematic and interpretative article. It identifies the main aspects to be taken into account to resolve the contradictions caused by financial assistance being prohibited and leveraged mergers being regulated specifically. It also offers a solution to the problem based on basic Spanish law principles. [ABSTRACT FROM AUTHOR]

We show that cross-border leveraged buyout investments involving U.S. rather than non-U.S. private equity (PE) investors are more likely to have a successful exit (initial public offering or acquisition). Exogenous increases in effective proximity following the signing of "open sky agreements" between the United States and target firms' home countries increases both the propensity of U.S. PE firms to invest in these firms and the value addition by these investors. We show that such increases in value addition by U.S. PE investors following proximity increases are at least partially due to better monitoring, facilitated by the more efficient allocation of experienced U.S. PE managers to cross-border deals. [ABSTRACT FROM AUTHOR]

I develop an analytically tractable model that integrates the risk-shifting problem between bondholders and shareholders with the moral-hazard problem between shareholders and the manager. An optimal contract binds shareholders and the manager, and this contract's flexibility allows shareholders to relax the manager's incentive constraint following a "good" profitability shock. Thus, the optimal contract amplifies the upside and thereby increases shareholder appetite for risk shifting. Whereas some empirical studies find a positive relation between risk shifting and leverage, others find a negative relation. This model predicts a non-monotonic relation between risk shifting and leverage and can reconcile these contradictory empirical findings. [ABSTRACT FROM AUTHOR]

We study the economic impact of private equity (PE) investments on local governments, which are important corporate stakeholders. Examining over 11,000 deals and private firm data in Europe, we document that target firms' effective tax rates and total tax expenses decrease by 15% and 13% after PE deals. At the same time, target firms expand their capital expenditures and firm boundaries, but do not increase employment. Using administrative data on the public finances of German municipalities and exploiting the geographical and time‐series variation in PE deals, we document that PE activity is negatively associated with local governments' tax revenues and spending. This result is likely driven by reduced tax payments of PE portfolio firms, accompanied by only modest positive spillovers of PE investments on regional economic growth. Collectively, our findings suggest that corporate tax efficiency serves as a cost‐cutting channel in the PE sector and constrains the finances of local governments. [ABSTRACT FROM AUTHOR]

This paper provides the first nationally representative assessment of intrinsic job quality in leveraged buyouts (LBOs). We propose a workforce re‐contracting perspective, which views LBOs as having negative implications for some aspects of intrinsic job quality (job demands) but positive implications for others (job resources), and employee wellbeing and affective outcomes that are no different than in comparable non‐LBOs. Our empirical findings support this perspective. Nevertheless, we find some evidence that certain LBO types have more negative implications for specific elements of intrinsic job quality than others. However, our overall findings contribute towards studies suggesting that the impact of LBOs on employees is modest, while also highlighting the varying implications of different LBO types for employees. [ABSTRACT FROM AUTHOR]

547 Leveraged buyout (LBO) transactions are corporate acquisitions financed with multiple layers of debt and equity and form a large subset of the leveraged finance markets. In European LBOs various creditor-categories, the priorities, control and restructuring options are invariably controlled by intercreditor agreements. They set out a basis for a privatised insolvency procedure. Such privatised procedures are often considered both theoretically and practically impossible because of the risk of strategic creditor actions, the incomplete contracting problem, the incentive effects of agency costs and the difficulties of creditor coordination. This article sets out empirical findings how English law governed intercreditor agreements deal with strategic creditor actions and difficulties in creditor coordination, while creating a structured bargaining space for resolution of financial distress. The empirical analysis consists of content analysis of market ICAs and interviews. I argue that contractual solutions for dealing with financial distress in corporate finance are both theoretically and practically possible. ICAs deal with the most important strategic creditor actions and enable effective restructuring to take place contractually. Also, they can operate between sophisticated multi-round players and without necessarily resorting to the statutory procedures. 548 [ABSTRACT FROM AUTHOR]

Purpose: This paper aims to investigate how the passage of the Sarbanes Oxley Act (SOX) impacted the likelihood and timing of the decision of leveraged buyout (LBO) firms to exit via initial public offering (IPO) (reverse-LBO) and the mediating effect of reputed private equity (PE) firms. Design/methodology/approach: The sample comprises firms that went private via LBO between 1990 and 2018. The authors use logistic and ordinary least square regression models to compare the effect of SOX on the re-listing decision and the time taken to re-list. Findings: LBO firms were less likely to exit via public offering after SOX, and the time from LBO to IPO was significantly longer for exiting firms post-SOX. PE firm reputation partially reversed the reluctance to exit via IPO and shortened the time to exit. Research limitations/implications: The primary focus is RLBOs; the authors do not directly examine other methods of LBO exit. The findings have policy implications for unintended impacts of SOX. Despite the benefits of increasing transparency and protecting investors, SOX reduced the likelihood of going public and increased the time to IPO, potentially reducing product market competition. Originality/value: RLBOs present a unique experimental setting as the authors can test the impact of SOX on both the likelihood and time to go public, whereas prior literature using first-time IPO samples are able to test only the likelihood. The authors also show that the reputation of the advising PE firm attenuates the reluctance and time taken for RLBOs to re-list. The authors are, thus, able to provide a new perspective on the impact of SOX on the going public decision. [ABSTRACT FROM AUTHOR]

An acceleration in the global volume of leveraged finance debt with weak creditor protections poses systemic risks. Documentary standards have collapsed. Lawyer behaviour in the European leveraged buyout market has contributed to transaction documents becoming overwhelmingly one-sided in favour of private equity sponsors. and uncertain in their meaning. The lawyer designation model is key to understanding this phenomena. [ABSTRACT FROM AUTHOR]

As private equity's financial heft and influence on the business landscape has intensified, so too has scholarly interest in the phenomenon. We review recent progress in private equity research, with a focus on the private equity industry's later-stage buyout segment. To synthesize and integrate current findings, we construct a framework that encompasses not only antecedents and outcomes of private equity's activities, but also mediators and moderators of the relationships that drive these outcomes. Based upon the gaps and learning opportunities that are surfaced by this framework, we develop recommendations for future private equity research. The proposed research agenda is particularly germane to management scholars, whose theories and perspectives have thus far been productively, yet relatively sparingly, applied in private equity research. [ABSTRACT FROM AUTHOR]

This paper examines which factors determine the pricing of loans for LBOs, using a worldwide sample of 11,111 loans closed in the 2000–2016 period. Our findings are consistent with the hypotheses that loans for LBOs extended to borrowers in market- versus bank-based financial systems are differently priced, and that law and institutional characteristics are important determinants of spreads for deals closed in market-oriented countries. Despite LBO loan pricing differing significantly in normal versus crisis times, loans extended to borrowers in market-based financial systems have higher spreads than those where banks play a major role. Our results also support the hypothesis of tranching as a mechanism of reducing spreads by completing financial markets and mitigating informational asymmetries. Finally, a robust convex relationship between spread and maturity is found, suggesting higher market competition by banks and investors for standard, medium-term maturities. [ABSTRACT FROM AUTHOR]

Research Summary: We show that the existing alliance portfolio of a firm can impede the adoption of a new business practice. We analyze the private equity industry which features alliances in the form of deal syndication and has recently seen the rise of a novel investment practice: add‐on deals. Using algorithm‐supported induction, we first document robust empirical patterns using machine learning techniques, and then test the theory we construct to explain these patterns using standard econometric methods in a hold‐out sample. We find that when the capabilities required for the new business practice require new partners, existing alliance portfolio members who support current practices can impede access to these new partners (and hence the adoption of the new business practice) through capacity constraints and inter‐partner rivalry. Managerial Summary: Alliance partners play a valuable role in many industries, and particularly in the PE industry as syndication partners. While the benefits of working with such partners are well understood, we uncover a potential weakness that alliance portfolio managers should be aware of. If a new business practice relies substantially on a new type of alliance partner, the existing alliance portfolio may impede access to this partner, thus impeding the adoption of the new practice. For PE fund managers, in particular, this implies balancing their deal syndication strategy with the development of new relationships with corporate partners to adopt add‐on models to complement the traditional LBOs. We also show how to use machine learning techniques to uncover patterns of strategic interest in past transaction data. [ABSTRACT FROM AUTHOR]