The public corporation is often believed to have important advantages over its private counterpart. A stock market listing enables firms to raise funds in public capital markets, increases the share liquidity for investors, allows founders and entrepreneurs to diversify their wealth, and the higher degree of visibility and media exposure of public firms can be an effective tool in the marketing of the company. However, the publicly quoted company with dispersed ownership may suffer from too high a degree of managerial discretion resulting from a lack of monitoring which may lead to ‘empire building’ at the detriment of shareholder value. One way of refocusing the firm on shareholder value creation is to restructure the firm by means of a leveraged buyout (LBO), in which an acquirer takes control of the firm in a public-to-private (PTP) transaction financed largely by funds borrowed against the target’s assets and/or cash flows.
Posted by Luc Renneboog & Cara Vansteenkiste, Tilburg University, on Wednesday, February 8, 2017
Editor's Note: Luc Renneboog is Professor of Corporate Finance and Cara Vansteenkiste is a PhD student at Tilburg University. This post is based on a recent post by Professor Renneboog and Ms. Vansteenkiste.