Online Appendix to “A theory of LBO activity based on repeated debt-equity conflicts”
نویسندگان
چکیده
Compared with Eq. (32), equity value is reduced by the expected deadweight loss from diversion, (1−qT )(1−λ)XB 1+r . Effectively, shareholders bear the full cost of diversion by paying a high interest rate on debt. It follows that the optimal debt in this range is D∗. It follows that the target chooses between taking high debt D∗ and diverting value from creditors in the bad state and taking low debt (1− λ)XB and not diverting value. Its equity
منابع مشابه
A theory of LBO activity based on repeated debt-equity conflicts
We develop a theory of leveraged buyout (LBO) activity based on two elements: the ability of private equity-owned firms to borrow against their sponsors' reputation with creditors and externalities in sponsors' reputations due to competition and club formation. In equilibrium, the two sources of value creation in LBOs, operational improvements and financing, are complements. Moreover, sponsors ...
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This appendix contains tables and figures that supplement the analysis in the paper. Section A presents the asset pricing test results with equity issuance cost shocks constructed using alternative definitions of equity issuance. Section B presents the asset pricing test results with equity issuance cost shocks constructed by taking averages of portfolio-level equity issuance shocks across port...
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