This study analyzes the returns to target stockholders under business combinations and leveraged buyouts surrounding the acquisition announcements. After controlling for the effects of transaction-related factors and firm-specific financial characteristics, target firms in business combinations are found to capture significantly greater abnormal returns compared to their counterparts engaged in leveraged buyouts. The findings imply that the potential risk-adjusted economic gains of a business combination significantly exceed the potential risk-adjusted productive gains associated with restructuring a public firm into a private concern through a leveraged buyout.
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