Efficiency and Organizational Structure: A Study of Reverse LBOs.
Muscarella, Chris J
Vetsuypens, Michael R
Journal of Finance,
This paper is a report on seventy-two firms that went public since 1983, but previously underwent a full or divisional levereged buy-out. Accounting measures of performance reveal significant improvements in profitability, which resulted mainly from these firms' ability to reduce costs. Firms experience dramatic increases in leverage at the levereged buyout, but the leverage ratios are gradually reduced. The evidence is consistent with the hypothesis that the change in the governance structure of these firms towards more concentrated residual claims created a new organizational structure that is more efficient than its predecessor. Copyright 1990 by American Finance Association.