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Assessing the Impact of Management Buyouts on Economic Efficiency: Plant-Level Evidence from the United Kingdom

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Author Info
Richard Harris (Department of Economics and Finance, University of Durham, UK)
Donald S. Siegel () (Department of Economics, Rensselaer Polytechnic Institute, Troy, NY 12180-3590, USA)
Mike Wright (Business School, University of Nottingham, UK.)

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Abstract

We assess the total factor productivity (TFP) of plants before and after management buyouts (MBOs), using the Annual Business Inquiry Respondents Database (ARD) file, which contains longitudinal data for approximately 36,000 U.K. manufacturing establishments. Our preliminary results suggest that these MBO establishments were less productive than comparable plants before the transfer of ownership. We also find that MBO plants experienced a substantial increase in productivity after a buyout. These post-buyout productivity gains appear to be pervasive across industries. The results imply that the improvement in economic performance may be due to measures undertaken by new owners or managers to reduce the labor intensity of production, through the outsourcing of intermediate goods and materials. Our evidence suggests that MBOs may be a useful mechanism for reducing agency costs and enhancing economic efficiency. More generally, the findings are consistent with recent theoretical and empirical evidence (Jovanovic and Rousseau (2002a, 2002b)) suggesting that takeovers result in the reallocation of a firm's resources to more efficient uses and to better managers.

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Paper provided by Rensselaer Polytechnic Institute, Department of Economics in its series Rensselaer Working Papers in Economics with number 0304.

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Date of creation: Oct 2003
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Handle: RePEc:rpi:rpiwpe:0304

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Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Lichtenberg, Frank R. & Siegel, Donald, 1990. "The effects of leveraged buyouts on productivity and related aspects of firm behavior," Journal of Financial Economics, Elsevier, vol. 27(1), pages 165-194, September. [Downloadable!] (restricted)
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  2. Arellano, Manuel & Bond, Stephen, 1991. "Some Tests of Specification for Panel Data: Monte Carlo Evidence and an Application to Employment Equations," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 277-97, April. [Downloadable!] (restricted)
  3. Boyan Jovanovic & Peter L. Rousseau, 2002. "The Q-Theory of Mergers," American Economic Review, American Economic Association, vol. 92(2), pages 198-204, May. [Downloadable!]
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  4. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254. [Downloadable!] (restricted)
  5. Kaplan, Steven N., 1991. "The staying power of leveraged buyouts," Journal of Financial Economics, Elsevier, vol. 29(2), pages 287-313, October. [Downloadable!] (restricted)
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  6. Jensen, Michael C, 1993. " The Modern Industrial Revolution, Exit, and the Failure of Internal Control Systems," Journal of Finance, American Finance Association, vol. 48(3), pages 831-80, July. [Downloadable!] (restricted)
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  7. Boyan Jovanovic & Peter L. Rousseau, 2002. "Mergers as Reallocation," NBER Working Papers 9279, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  8. Richard Blundell & Steve Bond, 1999. "GMM estimation with persistent panel data: an application to production functions," IFS Working Papers W99/04, Institute for Fiscal Studies. [Downloadable!]
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  9. Frank R. Lichtenberg & Donald Siegel, 1987. "Productivity and Changes in Ownership of Manufactoring Plants," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 18(1987-3), pages 643-684. [Downloadable!]
  10. Amess, Kevin, 2002. "Management Buyouts and Firm-Level Productivity: Evidence from a Panel of UK Manufacturing Firms," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(3), pages 304-17, August. [Downloadable!] (restricted)
  11. Harris, Richard I D & Drinkwater, Stephen, 2000. " UK Plant and Machinery Capital Stocks and Plant Closures," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 62(2), pages 243-65, May. [Downloadable!] (restricted)
  12. Frank R. Lichtenberg & Donald Siegel, 1991. "The Impact of R&D Investment On Productivity - New Evidence Using Linked R&D-LRD Data," NBER Working Papers 2901, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  13. Lichtenberg, Frank R & Siegel, Donald, 1990. "The Effect of Ownership Changes on the Employment and Wages of Central Office and Other Personnel," Journal of Law & Economics, University of Chicago Press, vol. 33(2), pages 383-408, October.
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(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Donald S. Siegel & Kenneth L. Simons & Tomas Lindstrom, 2005. "Ownership Change, Productivity, and Human Capital: New Evidence from Matched Employer-Employee Data in Swedish Manufacturing," Rensselaer Working Papers in Economics 0502, Rensselaer Polytechnic Institute, Department of Economics. [Downloadable!]
  2. Gottschalg, Oliver, 2008. "Business and politics: how political beliefs influence volume and performance of leveraged buyouts," Les Cahiers de Recherche 893, HEC Paris. [Downloadable!]
  3. Donald S. Siegel & Kenneth L. Simons, 2006. "Assessing the Effects of Mergers and Acquisitions on Firm Performance, Plant Productivity, and Workers: New Evidence from Matched Employer-Employee Data," Rensselaer Working Papers in Economics 0601, Rensselaer Polytechnic Institute, Department of Economics. [Downloadable!]
  4. Gottschalg, Oliver & Berg, Achim, 2005. "Understanding value generation in buyouts," Les Cahiers de Recherche 824, HEC Paris. [Downloadable!]
  5. Roger Bandick & Holger Görg, . "Foreign Acquisitions, Plant Survival, and Employment Growth," Discussion Papers 09/13, University of Nottingham, GEP. [Downloadable!]
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  6. Lorraine Uhlaner & Mike Wright & Morten Huse, 2007. "Private Firms and Corporate Governance: An Integrated Economic and Management Perspective," Small Business Economics, Springer, vol. 29(3), pages 225-241, October. [Downloadable!] (restricted)
  7. John Marsh & Donald S. Siegel & Kenneth L. Simons, 2006. "Assessing the Effects of Ownership Change on Women and Minority Employees: Evidence from Matched Employer-Employee Data," Rensselaer Working Papers in Economics 0607, Rensselaer Polytechnic Institute, Department of Economics. [Downloadable!]
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  8. Meuleman,M. & Amess, K. & Wright, M. & Scholes, L., 2008. "Agency, strategic entrepreneurship and the performance of private equity backed buyouts," Vlerick Leuven Gent Management School Working Paper Series 2008-05, Vlerick Leuven Gent Management School. [Downloadable!]
  9. Christian Schade & Donald Siegel, 2008. "International issues in entrepreneurship," Small Business Economics, Springer, vol. 31(1), pages 1-3, June. [Downloadable!] (restricted)
  10. Boyan Jovanovic & Serguey Braguinsky, 2004. "Bidder Discounts and Target Premia in Takeovers," American Economic Review, American Economic Association, vol. 94(1), pages 46-56, March. [Downloadable!]
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  11. Renneboog, L.D.R. & Simons, T. & Wright, M., 2005. "Leveraged public to private transactions in the UK," Discussion Paper 15, Tilburg University, Tilburg Law and Economic Center. [Downloadable!]
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  12. Dirk Engel & Joel Stiebale, 2009. "Private Equity, Investment and Financial Constraints – Firm-Level Evidence for France and the United Kingdom," Ruhr Economic Papers 0126, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen. [Downloadable!]
  13. Phillip Leslie & Paul Oyer, 2008. "Managerial Incentives and Value Creation: Evidence from Private Equity," NBER Working Papers 14331, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  14. Molnar, Jozsef, 2007. "Pre-emptive horizontal mergers: theory and evidence," Research Discussion Papers 17/2007, Bank of Finland. [Downloadable!]
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  15. Steven N. Kaplan & Per Strömberg, 2008. "Leveraged Buyouts and Private Equity," NBER Working Papers 14207, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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