| The leveraged buyout (LBO) market is characterized by a network of syndication and secondary buyout interactions between buyout firms. Using cost-benefit analysis, I hypothesize and find evidence that high skill buyout firms, those with superior past performance, are less likely to syndicate than low skill firms. Low skill firms utilize syndication to pool skill, resources, and information to overcome firm-specific deficiencies. Using network analysis, I also hypothesize and find that low skill buyout firms are less likely to successfully exit an LBO without syndication, but no such effect exists for high skill firms. Further, I test the effects of skill on secondary buyout participation. I find evidence of a lemon's market existing in the secondary buyout market. High skill firms are able to overcome the lemon's market and are the most likely sellers and purchasers of secondary buyouts. I also document evidence that liquidity and time constraints significantly increase the likelihood of a secondary buyout. |
