Abstract
The financial distress of companies subject to leveraged buyouts (LBO) might help explain their bankruptcy. The current research establishes a link between the presence of vulture funds and an increased probability of bankruptcy following LBOs. With an exploratory study, the author reveals that the characteristics of companies under LBO facilitate the actions of vulture funds, whose strategy is not limited to the use of discretionary control power but also extends to unconventional methods, such as media campaigns and other informal tactics. Such actions by vulture funds contribute to increase the chances of bankruptcy, through two main routes: different biases in valuation at each stage of action and residual cognitive costs. Notably though, the increase in cognitive costs created by divergences between managers and vulture funds is unrelated to managerial competence.
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