Does an Industry Effect Exist for Leveraged Buyouts?

Abstract

We examine the industry effect hypothesis for leveraged buyouts that suggests leveraged buyouts will be concentrated in low-growth industries that produce free cash flow. Past studies of the leveraged buyout phenomenon have not examined the validity of the industry effect hypothesis. By testing for an industry effect, we hope to further the research concerning the motivations for why leveraged buyouts occur. The findings in this paper in general do not support the industry effect hypothesis. We find only spurious correlation between leveraged buyouts and industries. Based on these results, we conclude that firm specific factors motivate leveraged buyouts.

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