Serious questions have been raised concerning the adverse effects which may stem from LBOs, in which the meshing of the principal business activities of the merger partners appears to have either a low or no priority. Within the framework of this problem area, this research study investigated the following research question:
What effect does merger accomplished through an LBO structure have on the operating efficiency (profitability) of the surviving firm in comparison with the premerger operating efficiency of the firms involved in the merger?
The focus of this research study was on the impact on operating efficiency of LBO mergers. It is recognized that other factors also affect operating efficiency, and, while an effort was made to eliminate the effects of such other factors, the validity of the findings of this study may be compromised to some extent by this limitation. Based upon the research question investigated in this study, a research hypothesis was formulated, and was tested in the conduct of the study. This hypothesis was stated as follows: It is hypothesized that merger accomplished through an LBO structure will cause the operating efficiency (profitability) of the surviving firm to decline from the premerger
profitability levels of the separate firms involved in the merger.
The time frame for the data collection for this studywas 19831987 inclusive. LBO mergers occurring in the 19841985 time frame were included in the population from which the research sample was selected. These cutoff dates permitted the collection of fullyear data for the last full year of reported operations prior to the effective merger date, and for the second full year of reported operations subsequent to the effective merger date. The second year subsequent to merger was used as a measurement, to permit the nonoperational effects of the merger process to be absorbed by the surviving firm, prior to measurement of th...