LBOs, Corporate Restructuring, and the Incentive-Intensity Hypothesis

This paper uses a detailed database on corporate operations to investigate the effects of leveraged buyouts on corporate restructuring activity in a sample of 33 large LBO firms. The evidence we present strongly suggests that the governance structure of LBO firms is able to induce managers to forego growth and downsize firms more effectively than the governance structure of public corporations. The evidence is also consistent with the argument that one purpose of leveraged buyouts is to reconfigure target firms' operations. The results of this study suggest that corporate restructuring activity may be an important source of the efficiency gains observed in prior studies of the accounting performance of LBO firms.