An Overview on Private Equity Leveraged Buyouts

Abstract

It has been over three decades since Jensen brought up the new form of ownership in private equity, today, private equity plays a significant role in financial markets. Moreover, private equity and other forms of firms offer different impacts on the whole economy as well as financial markets. To begin with, we provide an overview of the development of private equity as well as leveraged buyouts (LBO). Furthermore, we summarize and give a further analysis about the three key factors of private equity: management fee issues, taxation issues, and the role in society are included. We realize that private equity fees show little sensitivity to both internal and external factors. On the taxation side, the main argument focuses on whether the original tax rules are the primary cause that led to the “tax tunnelling”. On the economic side, LBO has influences on employment rate and wage level. Overall, by the advancement of society, people start to realize the significant character private equity plays in the economy, and private equity itself occupies a decisive position in the operation of firms, yet there are unsolved issues and arguments about private equity and LBO, specifically, how the operation of private equity effect itself (fees, taxes, etc.) and exogenous factors, we provide the possibilities for further research at the end of the paper.