We examine changes in managers' investment in the firm around leveraged buyouts and find agency costs counter to those described in extant literature. In majority of deals during 1997–2008, managers divested a portion of their pre-LBO shareholdings while maintaining an ownership stake in the post-LBO firm. Such divestment opportunities encourage managers to behave in a way that benefits existing shareholders but is costly to new investors. We report a positive relation between management's divestment and pre-LBO earnings management, market timing, and better buyout pricing. Although managerial divestment also leads to subpar post-buyout performance, the involvement of private equity mitigates it.