Do Buyouts (Still) Create Value?


  • Shourun Guo is from the Duke Energy Corporation. Edith S. Hotchkiss is from Carroll School of Management, Boston College. Weihong Song is from the College of Business, University of Cincinnati. The authors thank Francesca Cornelli, Ken Doyle, Mike Ferguson, John Graham Editor, Campbell Harvey, Steve Kaplan, Darren Kisgen, Kai Li, John Morris, Jun Qian, Laura Resnikoff, Steve Slezak, Jeremy Stein, Per Strömberg, Wei Wang, an anonymous referee, and seminar participants at Babson College, Boston College, the 7th China International Conference in Finance (Guangzhou), University of Connecticut, Drexel University, the NBER New World of Private Equity conference, the Swedish Institute for Financial Research, and Università Ca'Foscari di Venezia for helpful comments and suggestions.


We examine how leveraged buyouts from the most recent wave of public to private transactions created value. Buyouts completed between 1990 and 2006 are more conservatively priced and less levered than their predecessors from the 1980s. For deals with post-buyout data available, median market- and risk-adjusted returns to pre- (post-) buyout capital invested are 72.5% (40.9%). In contrast, gains in operating performance are either comparable to or slightly exceed those observed for benchmark firms. Increases in industry valuation multiples and realized tax benefits from increasing leverage, while private, are each economically as important as operating gains in explaining realized returns.