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Is it Free Cash Flow, Tax Savings, or Neither?An Empirical Confirmation of Two Leading Going‐private Explanations:The Case of ReLBOs

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  • Arman Kosedag
  • William R. Lane

Abstract

Firms which ‘go private’ via a leveraged buyout (LBO) retain the option to ‘go public’ again, a process known as a reverse LBO transaction. This paper examines the rarer phenomenon of reLBOs; that is, the practice of going private via leveraged buyout, reobtaining public status through a new initial public offering, and then going private a second time. Among the several alternative hypotheses explaining LBOs, we focus on two prominent ones – free cash flow and tax savings – to explain reLBOs. With a sample of 21 reLBO firms, we find no empirical support for the free cash flow hypothesis but detect a significant relationship between the decision to go private for the second time and the tax savings potential of the firm.

Suggested Citation

  • Arman Kosedag & William R. Lane, 2002. "Is it Free Cash Flow, Tax Savings, or Neither?An Empirical Confirmation of Two Leading Going‐private Explanations:The Case of ReLBOs," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(1‐2), pages 257-271.
    • Handle: RePEc:bla:jbfnac:v:29:y:2002:i:1-2:p:257-271
    DOI: 10.1111/1468-5957.00431
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    Cited by:

    1. Renneboog, L.D.R. & Simons, T., 2005. "Public-to-Private Transactions : LBOs, MBOs, MBIs and IBOs," Discussion Paper 2005-98, Tilburg University, Center for Economic Research.
    2. Renneboog, L.D.R. & Simons, T., 2005. "Public-to-Private Transactions : LBOs, MBOs, MBIs and IBOs," Other publications TiSEM 3b76799c-591c-4d22-b126-a, Tilburg University, School of Economics and Management.
    3. Walter, Andreas & Eisele, Florian, 2003. "Kurswertreaktionen auf die Ankündigung von Going Private : Transaktionen am deutschen Kapitalmarkt," Tübinger Diskussionsbeiträge 274, University of Tübingen, School of Business and Economics.
    4. Renneboog, Luc & Vansteenkiste, Cara, 2017. "Leveraged Buyouts : A Survey of the Literature," Discussion Paper 2017-015, Tilburg University, Center for Economic Research.
    5. Florian Eisele & Andreas Walter, 2006. "Kursreaktionen auf die Ankündigung von Going Private-Transaktionen am deutschen Kapitalmarkt," Schmalenbach Journal of Business Research, Springer, vol. 58(3), pages 337-362, May.

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