Shareholder Wealth Maximization Under Leveraged Buyouts

Abstract

This paper examines the possible excess returns to stockholders arising from leveraged buyout transactions in an effort to determine whether or not such transactions are consistent with shareholder wealth maximization. In addition, the excess returns generated through leveraged buyouts are compared to those associated with typical, non-leveraged acquisitions. The implications of these comparisons are discussed with a special emphasis on the impact of leveraged buyouts upon investors’ wealth. The major finding of this study is that shareholder wealth is increased, but not necessarily maximized, under leveraged buyouts.