A Study of Large Institutional Investor Trading Behavior Around Leveraged Buyouts

A Study of Large Institutional Investor Trading Behavior Around Leveraged Buyouts This study analyzes a segment of large institutional investors by focusing on their trading behavior around leveraged buyouts (LBO) during 1984–1992. Over 1,000 LBO-related transactions from the portfolios of the fifty largest life insurance companies in the U.S. form the data sample. The results indicate that large LBOs dominate the portfolios in both number and size of transactions. The average purchase occurs about four months prior to the initial LBO restructuring announcement, and the average disposal occurs about three-quarters into the life of the LBO event. About 25% of the portfolio is liquidated prior to the initial announcement, and only 4% of the purchases result after the initial announcement. Less than 6% of the transactions involve LBOs that are ultimately canceled. Finally, the sample of large institutional investors demonstrate an ability to predict the maximum share price to within 93%, and they earn a premium of about 15% over randomly-selected LBO-related portfolios. Overall, the results indicate that these large institutional investors demonstrated a superior ability in timing their LBO-related transactions. http://www.deepdyve.com/assets/images/DeepDyve-Logo-lg.png Review of Quantitative Finance and Accounting Springer Journals

A Study of Large Institutional Investor Trading Behavior Around Leveraged Buyouts

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Publisher
Kluwer Academic Publishers
Copyright
Copyright © 1997 by Kluwer Academic Publishers
Subject
Finance; Corporate Finance; Accounting/Auditing; Econometrics; Operation Research/Decision Theory
ISSN
0924-865X
eISSN
1573-7179
D.O.I.
10.1023/A:1008267022062
Publisher site
See Article on Publisher Site

Abstract

This study analyzes a segment of large institutional investors by focusing on their trading behavior around leveraged buyouts (LBO) during 1984–1992. Over 1,000 LBO-related transactions from the portfolios of the fifty largest life insurance companies in the U.S. form the data sample. The results indicate that large LBOs dominate the portfolios in both number and size of transactions. The average purchase occurs about four months prior to the initial LBO restructuring announcement, and the average disposal occurs about three-quarters into the life of the LBO event. About 25% of the portfolio is liquidated prior to the initial announcement, and only 4% of the purchases result after the initial announcement. Less than 6% of the transactions involve LBOs that are ultimately canceled. Finally, the sample of large institutional investors demonstrate an ability to predict the maximum share price to within 93%, and they earn a premium of about 15% over randomly-selected LBO-related portfolios. Overall, the results indicate that these large institutional investors demonstrated a superior ability in timing their LBO-related transactions.

Journal

Review of Quantitative Finance and AccountingSpringer Journals

Published: Sep 29, 2004

References

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