LBOS, REVERSIONS AND IMPLICIT CONTRACTS

The conventional view of going-private transactions is that they are d esigned to enhance the efficiency of the firm (for example, Jensen (19 86)). A starkly different view is that these and other control transac tions are motivated to effect transfers from other stakeholders in the firm to equity holders (Shleifer and Summers (1988)). This study expl oits data describing pension terminations as a way to test these theor ies. We conclude that the efficiency theory can plausibly explain a su bstantial number of LBO-related terminations, but not enough to underm ine the transfer theory. More specific predictions from the efficiency theory are needed to structure more exacting tests.