ABSTRACT

Private equity (PE) leveraged buyouts (LBOs) are financial transactions through which an acquirer buys a controlling stake in a company using a substantial amount of debt, with the objective of selling it after a few years for a profit. This chapter discusses how the literature has focused mostly on technological innovation, paying relatively less attention to managerial innovation. It demonstrates the different theoretical frameworks to analyze LBOs and the extent to which the empirical literature supports their predictions. Two main theoretical frameworks link LBOs to the performance in general – and the innovation in particular – of target companies: agency theory and strategic entrepreneurship theory. The agency theory of LBOs stems from the seminal works on the relationship between shareholders and managers. The second theoretical framework that can be used to describe the impact of LBOs on innovative activity is strategic entrepreneurship theory.