How do leveraged buyouts affect industry peers? Analysis of the information and the competition channels

Our paper provides a contribution to the literature on peer effects in leveraged buyouts and delivers an explanation for the seemingly contradicting findings in the existing literature. We find that the average peer announcement CAR amounts to −1.98%. A buyout may reveal private information about peer value and can also change in the competition within the buyout target industry. Our identification strategy to examine the information and competition channels relies on two quasi-natural experiments, which generate exogenous variation in the information and competition environments. In addition, we analyze various mechanisms within these two channels by considering the cross-section of peer CARs and by running additional tests. Our results support the revaluation and the competitive pressure hypotheses.