The Eclipse of LBO Research in Strategic Management

M.R. Braun (USA)


Leveraged buyouts, strategic management, normative science.


A leveraged buyout, or LBO, can be defined as "a transaction in which a group of private investors uses debt financing to purchase a corporation" [1]. At the height of the corporate control market in the 1980s, LBOs provided financial economists with a natural laboratory to test concepts of capital market imperfections and agency cost. Strategy scholars, influenced by their discipline's growing dependence on economics, took up an exploration of the LBO's strategic implications on corporate governance, diversification and innovation. However, an over-reliance on an outdated LBO taxonomy has made strategic research on this phenomenon irrelevant and, subsequently, nonexistent in strategy research. Meanwhile, the market for buyouts is larger than ever, delivering strategic and structural innovations that have important implications on the management of the modern corporation. The purpose of this paper is to demonstrate that strategy studies on LBOs have become ensnared in a normative science straightjacket. A discussion on the evolution of the LBO market, its possible implications on firm strategy, and suggestions on further research paths are meant to help unshackle the straightjacket and reinvigorate research agendas on this organizational phenomenon.

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