How do leveraged buyouts affect industry peers' performance: Evidence from Europe

Abstract This paper analyzes the impact of leveraged buyouts (LBOs) on the profitability of target firms' industry peers in Europe. To address the endogeneity of LBO activity, I employ a control function approach, using the European Takeover Directive as an instrumental variable. The results indicate that peers improve their profitability following LBOs, driven by improved asset utilization and enhanced cost efficiency. Unlike the findings in the US‐based literature, my analysis reveals that positive future industry developments also contribute to the overall effect. These findings suggest that the impact of LBOs on industry peers varies to some extent in the European context.