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September/October 1989, 
Vol. 71, No. 5
Posted 1989-09-01

The Causes and Consequences of Leveraged Buyouts

by Michelle R. Garfinkel

Michelle R. Garfinkel argues that the expressed skepticism about leveraged buyouts is implicitly premised on the notion that these transactions have no real impact on the target firms’ productive capacity. In discussing the theory and existing empirical evidence that suggests leveraged buyouts are productive, at least in an expected sense, she points out that arguments to restrict this activity are less compelling; if leveraged buyouts actually enhance the target firms’ performance, then legal restrictions could prove to be harmful.