Do U.S. Financial Markets Allocate Credit Efficiently? The Case of Corporate Restructuring in the 1980s

Corporate acquisitions were big business during the 1980s. Their financing was an integral part of the revolution that took place in financial markets and practices and played a central role in creating the leverage mania of the decade. The 1980s corporate restructuring went beyond mergers per se, as a great many companies borrowed money to buy back stock or issue special dividends. The net effect of all this merger-driven activity was the same: equity was replaced with debt on corporate balance sheets on a massive scale.