LBOs, Reversions and Implicit Contracts




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    • Pension Benefit Guaranty Corporation. The views expressed in this paper do not reflect the official position of the PBGC. We are indebted to Ken Lehn for sharing his data and counseling us throughout the project, John Thompson for helping us build the pension database, Pauline Ippolito, Alan Mathios, and Thomas Steinmeier for advising us on various econometric issues, Andrei Shleifer, Jack VanDerhei, colleagues at the PBGC, the referee, the editor, and participants at seminars at the SEC, Treasury, BLS, Cornell, Chicago, and the Miami University Conference on Contemporary Pension Economics for their many helpful suggestions.


The conventional view of going-private transactions is that they are designed to enhance the efficiency of the firm (for example, Jensen (1986)). A starkly different view is that these and other control transactions are motivated to effect transfers from other stakeholders in the firm to equity holders (Shleifer and Summers (1988)). This study exploits data describing pension terminations as a way to test these theories. We conclude that the efficiency theory can plausibly explain a substantial number of LBO-related terminations, but not enough to undermine the transfer theory. More specific predictions from the efflciency theory are needed to structure more exacting tests.