MBO Withdrawals and Determinants of Stockholders’ Wealth

29 Pages Posted: 25 Sep 2011

See all articles by Pornsit Jiraporn

Pornsit Jiraporn

Pennsylvania State University - School of Graduate Professional Studies (SGPS)

Wallace N. Davidson

Southern Illinois University at Carbondale - Department of Finance

Hong Qian

Oakland University - Department of Accounting and Finance

Date Written: July 11, 2002

Abstract

Not all firms that intend to go private do so successfully. A number of management buyouts are announced but subsequently withdrawn. It is documented in this study that the stock market reacts negatively to MBO withdrawal announcement. This adverse effect, however, is alleviated in firms where inside directors hold higher proportions of equity ownership and where boards of directors are dominated by independent directors. The results suggest that higher ownership by inside directors helps align management’s and shareholders’ interests whereas outside-dominated boards better monitor management, whose fiduciary duties to shareholders may be compromised by conflicts of interest inherent in management buyouts. Finally, there is evidence that firms that could have taken the offer by another bidder but decided in favor of the MBO, which subsequently fails, suffer more adverse market reactions when the MBO is withdrawn.

Keywords: MBO, LBO, management buyouts, leveraged buyouts, corporate governance, ownership, agency theory, agency costs, agency problems

JEL Classification: G32, G34

Suggested Citation

Jiraporn, Pornsit and Davidson, Wallace N. and Qian, Hong, MBO Withdrawals and Determinants of Stockholders’ Wealth (July 11, 2002). Available at SSRN: https://ssrn.com/abstract=1933246 or http://dx.doi.org/10.2139/ssrn.1933246

Pornsit Jiraporn (Contact Author)

Pennsylvania State University - School of Graduate Professional Studies (SGPS) ( email )

30 E. Swedesford Road
Malvern, PA 19355
United States
(484) 753-3655 (Phone)

HOME PAGE: http://www.personal.psu.edu/pxj11/index1.html

Wallace N. Davidson

Southern Illinois University at Carbondale - Department of Finance ( email )

Mail Code 4626
Carbondale, IL 62901-4626
United States
618-453-1429 (Phone)
618-453-5626 (Fax)

Hong Qian

Oakland University - Department of Accounting and Finance ( email )

347 Elliott Hall
275 Varner Dr.
Rochester, MI 48309
United States

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