The paradox of stakeholder power in leveraged buyout financing: A multiple-agency perspective
Divakaruni, Anantha Krishna Meuleman, Miguel Wright, Mike
Divakaruni, Anantha Krishna
Meuleman, Miguel
Wright, Mike
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2015
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Abstract
Previous studies have relied predominantly on agency theory to understand relationships among stakeholders (actors) involved in a leveraged buyout transaction and explain inherent characteristics of LBO debt financing. However, traditional agency theory overlooks structural characteristics like dependencies and power-differentials between principals and agents. Using a multiple-agency framework on a sample of 6,609 LBO loan tranches that were issued during the period 1986-2012, we examine how power dynamics impact contractual outcomes among LBO participants. Our analysis highlights the asymmetric nature of power among agency partners. Agency conflicts are lower when lenders (principals) have a dependence advantage over PE- sponsors (agents) and higher when the latter possess more power in the relationship.
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Accounting & Finance, Entrepreneurship, Small and Medium sized Enterprises (SMEs)