SAFE Working Paper No. 357

Spillovers of PE Investments

In this paper, we investigate a primary potential impact of leveraged buyout (LBOs) transactions:

the effects of LBOs on the peers of the LBO target in the same industry. Using

a data sample based on US LBO transactions between 1985 and 2016, we investigate the

impact of the peer firms in the aftermath of the transaction, relative to non-peer firms.

To account for potential endogeneity concerns, we employ a network-based instrumental

variable approach. Based on this analysis, we find support for the proposition that LBOs

do indeed matter for peer firms’ performance and corporate strategy relative to non-peer

firms. Our study supports a learning factor hypothesis: peers gain by learning from the

LBO target to improve their operational performance. Conversely, we find no evidence

to support the conjecture that peers lose due to the increased competitiveness of the LBO

target firm.