Employee Stock Ownership Plans (ESOPs) are useful instruments for financing leveraged buyouts because in an ESOP transaction
A)employees have a greater voice in the final decision
B)lenders can offer below market interest rates
C)ESOPs can be used only when employees take over management functions
D)ESOPs attract greater external equity investments

Question

Quizplus · Accepted Answer

ESOPs can be used as a financing tool for leveraged buyouts because they allow companies to borrow money at below market interest rates. This is because lenders view ESOPs as lower risk than other forms of financing due to the fact that the company's employees have a financial stake in the success of the company. Therefore, the lower interest rates can make the overall cost of financing the leveraged buyout cheaper, which can be beneficial for the company and its shareholders.

Employee Stock Ownership Plans (ESOPs) Are Useful Instruments for Financing