Do Insiders Time Management Buyouts and Freezeouts to Buy Undervalued Targets?
79 Pages Posted: 5 Jun 2016 Last revised: 10 Sep 2018
Date Written: July 1, 2018
We provide evidence that managers and controlling shareholders time management buyouts (MBOs) and freezeout transactions to take advantage of industry-wide undervaluation. Portfolios of industry peers of MBO and freezeout targets show significant alphas of around 1% per month over the 12-month period following the transaction. These returns are not explained by a battery of risk factors or empirical methodologies, but exhibit significant heterogeneity across deals. Additional tests show that, on average, abnormal returns to industry peers are a reliable proxy for those to the target firm. Further, MBOs and freezeouts are announced during troughs of industry profitability.
Keywords: management buyouts, freezeout acquisitions, market timing, conflicts of interest
JEL Classification: G14, G34
Suggested Citation: Suggested Citation