ABSTRACT
This chapter discusses the fraud-facilitated junk bond transactions squarely in the context of the leveraged buyout (LBO) that were the major method of funding mergers and acquisitions during the 1980s. It demonstrates the role of Drexel in the merger and acquisition movement of the 1980s. The chapter analyzes the relationship between Drexel's fraud and the economic context of mergers, LBOs, and the development of the junk bond market and capital markets, which Drexel both helped create and functioned within. It discusses the fraud developed as a result of the relationship between Drexel's goal of short-term productivity, specifically the High-Yield Bond Department's need for short-term profits, and the functioning of the economic environment in the 1980s. In economic organizational theory the firm is conceptualized as a power-neutral and literally boundaryless aggregate nexus of exchange much like an ideal market. Economic organizational theorists view management as being sanctioned by hostile takeovers underwritten by the junk bond market.
