Ten Myths About Leveraged Buyouts

Publication Date: February 1989

Publisher: Heritage Foundation (Washington, D.C.)

Author(s): Thomas M. Humbert

Research Area: Economics

Keywords: Economy

Type: Report

Abstract:

U.S. tax policy long has favored debt over equity, since interest payments are deductible while dividend payments are not. This tax bias, however, has existed for decades and thus cannot be the cause of the recent upsurge in leveraged buyouts. A more likely explanation for the surge is that LBOs are a bullish manifestation of American economic health and a welcome antidote to the empire building of the 1970s - when inflation made mergers and acquisitions more profitable than new investment. For more than six years, a surge in business confidence has helped generate strong growth and investment with enormous job creation and opportunity.