We introduce ambiguity about assets' value dynamics into a trade-off framework of capital structure to explain the empirically observed zero-leverage and underleverage puzzles. We utilize the decision framework of Chen and Epstein (2002) to characterize investors' ambiguity aversion. We show...

This paper provides a comprehensive study of deal characteristics and participants’ involvement in leveraged buyouts (LBOs) and their impact on target firms’ performance. Using a sample of 501 U.S. LBOs completed between 1986 and 2011, I find that better post-buyout operating performance are...