Policy Analysis No. 120

Debt, Leveraged Buyouts, and Corporate Governance

By Barry E. Adler and Larry E. Ribstein
May 2, 1989

Executive Summary

Leveraged buyouts (LBOs) have been blamed for a host of perceived economic evils, from the federal budget deficit to unemployment. In reality, LBOs are responsible for none of those evils; they are merely tools of economic organization. Such misconceptions about LBOs stem from a misunderstanding about the role of debt and the role of takeovers in the modern corporation. This paper attempts to dispel these misconceptions.

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Barry E. Adler is assistant professor of law and Larry E. Ribstein is professor of law at George Mason University.