Governance in LBO Transactions

Based on the French case, this article addresses the question of governance in LBO transactions, i.e. the chain of delegation between Private Equity funds' investors, funds, and target companies. It analyses the incentives and monitoring mechanisms as well as the regulatory framework. The French case highlights that governance in LBOs relies on institutional characteristics affecting the effectiveness of control and monitoring mechanisms. It also provides some evidence that LBO lead to an asymmetry between funds' interests and funds' investors' interests at the expense of investors. Finally, this article shows that LBOs involving PE funds may be more interesting for banks than for acquired companies.