Controlling the Conflict of Interest in Management Buyouts

John C. Easterwood · Ronald F. Singer · Anju Seth · Darla F. Lang

49 citations0/0 files storedThe Review of Economics and Statistics

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Corporate Finance and Governance Auditing, Earnings Management, Governance Private Equity and Venture Capital

Abstract

A controversial aspect of the management buyouts that were popular throughout the 1980s is the potential for a conflict of interest to arise when a manager bids to acquire the firm he manages. This study examines 184 management buyouts and reports three findings. First, returns to prebuyout shareholders are greater when managers must bid against outside acquirers. Second, bid revisions in the face of competition exceed revisions due to shareholder litigation and negotiations with boards. Third, the incidence of competition is negatively related to the prebuyout share holdings of managers. Coauthors are Ronald F. Singer, Anju Seth, and Darla F. Lang. Copyright 1994 by MIT Press.

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References

1988Management ownership and market valuation 1988Managerial control of voting rights 1989The effects of management buyouts on operating performance and value 1998Management Ownership and Market Valuation: An Empirical Analysis 1989Free Cash Flow and Stockholder Gains in Going Private Transactions 1990Corporate ownership structure and performance 1990The effects of leveraged buyouts on productivity and related aspects of firm behavior 1989Management Buyouts: Evidence on Taxes as a Source of Value

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2010Equity Markets Do Not Fit All: an Analysis of Public‐to‐Private Deals in Continental Europe 2007Irrevocable Commitments, Going Private and Private Equity 2018Do insiders time management buyouts and freezeouts to buy undervalued targets?2006Why Do Public Firms Go Private in the UK?2006Leveraged Buyouts in the U.K. And Continental Europe: Retrospect and Prospect 2008Economic Consequences of Private Equity Investments on the German Stock Market

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