The Impact of Corporate Governance Mechanisms on Value Increase in Leveraged Buyouts

Using a novel, hand-collected dataset, comprising 321 exited buyouts in the UK in the period 1995 to 2004, this study examines the realised value increase in exited leveraged buyouts. Testing the free cash flow theory, we show that value increase and return characteristics are related to corporate governance mechanisms resulting from a leveraged buyout. Furthermore, we show that return characteristics and the relation between buyout governance mechanisms, gearing, number of participants in equity syndicate and level of managerial ownership are related to size of buyout. We find that there exists a balance of interrelated governance mechanisms and deviations from this balance result in lower value increase.

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