LBOS, DEBT AND RESEARCH-AND-DEVELOPMENT INTENSITY

This paper deals with the impact of debt on R&D intensity for firms un dergoing a leveraged buyout (LBO). We develop seven hypotheses based o n capital market imperfection theories and agency theory. To test thes e hypotheses, we compare 72 R&D performing LBOs with 3329 non-LBO cont rol observations and 126 LBOs with little or no R&D expenditures. The regressions yield four statistically significant major findings. First , pre-LBO R&D intensity is roughly one-half of the overall manufacturi ng mean and two-thirds of the firm's industry mean. Second, LBOs cause R&D intensity to drop by 40 percent. Third, large firms tend to have smaller LBO-related declines in R&D intensity. Fourth, R&D intensive L BOs outperform both their non-LBO industry peers and other LBOs withou t R&D expenditures.