Cato Policy Analysis No. 120 May 2, 1989

Policy Analysis

Debt, Leveraged Buyouts, and Corporate Governance

by Barry E. Adler and Larry E. Ribstein

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

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 misconcep- tions.

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1989 The Cato Institute
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