A prominent feature of the current environment is the notable amount of leveraged buyout (LBO) activity. An LBO or the threat of an LBO acts to discipline management to raise shareholder value (Jensen, 1986; Kaplan, 1989).
LBOs, and other forms of private equity investment, may force management to implement strategic changes rapidly to restore the firm’s return on equity and boost share prices, in part by  4  BIS Review 67/2006  increasing financial leverage. LBOs increased sharply in late 2005, and they continued apace in the first half of this year.