A Comparison of Reverse Leveraged Buyouts and Original Initial Public Offers: Factors Impacting their Issuance in the IPO Market


  • The authors would like to thank the editor Stephen Ferris and an anonymous referee for very helpful comments that significantly improved this paper.

* Corresponding author: St. Joseph's University, Associate Professor of Finance, 5600 City Avenue, Philadelphia, Pa., 19131-1395; Phone:(610) 660-1671; Fax: (610) 660-1986; E-mail: hogan@sju.edu


The purpose of this paper is to assess the factors that affect the returns earned by investors in early trading of reverse LBOs and compare those results to factors affecting original IPOs which are matched by size, industry, and issue date. A mean excess return of 7.64% is observed for the sample of reverse LBOs during the period 1987 to 1998. This return is uniformly lower than returns earned by investing in original IPOs. These results support the information asymmetry hypothesis.

The results also show that factors such as number of months the LBO was privately held, the over-allotment, or greenshoe option, the size of the issue, insider ownership, and gross spread impact the returns earned by investors in reverse LBOs. Other factors which are known to affect returns on original IPOs, such as lead underwriter, whether the deal was syndicated, the number of managers, the listing exchange, lockup agreements, and auditor, are shown to have no impact on the returns in reverse LBOs for the sample in question. We find that the level of insider participation and the over-allotment option are more important to original IPOs than to reverse LBOs in explaining the excess returns earned by shareholders in early trading. We find, however, that the size of the offering has more impact on excess returns for reverse LBOs than for original IPOs.