The governance of reverse leveraged buyouts

In this dissertation, I explore the evolution of corporate board structures in leveraged buyouts (LBOs). As a particular form of corporate restructuring activity, the LBO is deemed the most efficient in enhancing corporate performance (Bowman, Singh, Useem & Bhadury 1999). To account for the LBO\u27s success and staying power, the discipline of debt and the incentives of managerial equity participation represent the leading explanations (Halpern, Kieschnick & Rotenberg 1999; Jensen 1989). A third, although much less studied, source of value in the LBO is the board of directors. To explore board restructurings in LBOs, I focus on the reverse leveraged buyout, or R-LBO. Because an R-LBO involves a going-private transaction that re-enters the public markets via a secondary initial public offering (SIPO), its use allows for a peek behind the curtain to observe organizational changes accomplished during the private phase of the restructuring and the impact of those changes on post-buyout firm performance. Specifically, I examine changes in the board composition of 65 R-LBOs and 65 time-, size- and industry-matched Continuing Firms spanning a 25-year period (1979-2004). I rely on agency theory and the resource dependence perspective to investigate the following three research questions: Do board structures predict companies engaging in buyouts versus those that do not engage in buyouts? To what extent are the boards of R-LBOs altered during the buyout phase? What are the linkages between changes in the R-LBOs\u27 board characteristics and the performance changes of these restructured firms? This dissertation contributes to the ongoing debate on whether the LBO creates value, and if so, how and for whom. I report several results from the descriptive statistics and econometric analyses of the data. For instance, firms with a dual (CEO-chair) structure are more likely to engage in R-LBO. I find that modifications to R-LBO boards are strongly related to changes in performance. As such, my dissertation finds support for both agency and resource dependence arguments for the board as a distinctive source of value in leveraged buyouts. I discuss the implications of these and additional results for research and practice