Management buyouts: The management/shareholder conflict.
Item
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Title
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Management buyouts: The management/shareholder conflict.
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Identifier
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AAI9130394
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identifier
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9130394
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Creator
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Zelcer, Moishe.
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Contributor
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Adviser: Victor Pastena
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Date
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1991
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Language
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English
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Publisher
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City University of New York.
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Subject
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Business Administration, Accounting | Economics, Finance
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Abstract
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This paper examines the management/shareholder struggle for corporate control as it is played out in the takeover arena. Does management engage in opportunistic behavior in an effort to acquire the firm at an unfair price? What factors either motivate or enable management to stage a leveraged buyout (LBO)?;A sample of 52 management buyout offers and 140 third party buyout offers are studied to determine if management underbids for the firm. The level of discretionary accruals at the two types of target firms and at a control group are compared in an effort to ascertain if management is depressing reported income prior to its announcement of the buyout offer. The effects of management compensation and stock ownership by management are also examined to determine their role in the market for corporate control.;This paper finds that the initial bid premium offered by management is significantly lower than the initial bid premium offered by third party bidders. The evidence in support of the claim that management is using negative accruals in an effort to depress the price of the stock is not conclusive, and is dependent on the definition of discretionary accruals. High levels of cash compensation and high levels of stock ownership by management are shown to facilitate a management buyout. Management buyout targets are shown to be significantly smaller than targets of third party bidders, and this may be an additional feasibility factor in management's decision to stage a LBO.;Consequently, shareholders are well advised to reject management's initial bid during a LBO, and third party bidders should not hesitate to counter management's initial bid with an offer of a higher bid premium.;The lack of evidence that management is manipulating reported income is consistent with a majority of the papers which have examined this issue. This paper contributes to the literature by comparing management LBOs to third party buyouts and to a control sample of non-target firms. The time period studied is recent and updates previous research in this area.
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Type
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dissertation
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Source
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PQT Legacy CUNY.xlsx
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degree
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Ph.D.
