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Management Buyouts of Divisions and Shareholder Wealth

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  • Hite, Gailen L
  • Vetsuypens, Michael R

Abstract

This paper examines the wealth effects to parent company shareholders around the announcement of divisional management buyouts. Despite the relative absence of "arms-length" bargaining between buyer and seller, there is no evidence that divisional management buyouts result in reductions in parent company share prices. Instead, small, but statistically significant, wealth gains are found during the two-day period surrounding the buyout announcement. This evidence suggests that divisional buyouts reallocate ownership of corporate assets to higher-valued uses and that parent company stockholders share in the expected benefits of this change in ownership structure. Copyright 1989 by American Finance Association.

Suggested Citation

  • Hite, Gailen L & Vetsuypens, Michael R, 1989. " Management Buyouts of Divisions and Shareholder Wealth," Journal of Finance, American Finance Association, vol. 44(4), pages 953-970, September.
  • Handle: RePEc:bla:jfinan:v:44:y:1989:i:4:p:953-70
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    Cited by:

    1. Christian Andres & André Betzer & Charlie Weir, 2007. "Shareholder wealth gains through better corporate governance—The case of European LBO-transactions," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 21(4), pages 403-424, December.
    2. Alperovych, Yan & Amess, Kevin & Wright, Mike, 2013. "Private equity firm experience and buyout vendor source: What is their impact on efficiency?," European Journal of Operational Research, Elsevier, vol. 228(3), pages 601-611.
    3. Roenfeldt, Rodney L & Sicherman, Neil W & Trifts, Jack W, 1992. "Division Management Buyouts of Unrelated Divisions without a Sales Price Reported," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 15(4), pages 297-305, Winter.
    4. Hans Bruining & Ernst Verwaal & Mike Wright, 2013. "Private equity and entrepreneurial management in management buy-outs," Small Business Economics, Springer, vol. 40(3), pages 591-605, April.
    5. Philippe Desbrières & Alain Schatt, 2002. "The Impact of Lbos on Investment Policies and Operations of Acquired French Firms," Working Papers CREGO 1021002, Université de Bourgogne - CREGO EA7317 Centre de recherches en gestion des organisations.
    6. Groh, Alexander P. & Gottschalg, Oliver, 2009. "The opportunity cost of capital of US buyouts," IESE Research Papers D/780, IESE Business School.
    7. Stouraitis, Aris, 2003. "Acquisition premiums when investment banks invest their own money in the deals they advise and when they do not: Evidence from acquisitions of assets in the UK," Journal of Banking & Finance, Elsevier, vol. 27(10), pages 1917-1934, October.
    8. Renneboog, L.D.R. & Simons, T., 2005. "Public-to-Private Transactions : LBOs, MBOs, MBIs and IBOs," Discussion Paper 2005-023, Tilburg University, Tilburg Law and Economic Center.
    9. Nikoskelainen, Erkki & Wright, Mike, 2007. "The impact of corporate governance mechanisms on value increase in leveraged buyouts," Journal of Corporate Finance, Elsevier, vol. 13(4), pages 511-537, September.
    10. Chaplinsky, Susan & Niehaus, Greg & Van de Gucht, Linda, 1998. "Employee buyouts: causes, structure, and consequences," Journal of Financial Economics, Elsevier, vol. 48(3), pages 283-332, June.
    11. Thomas Lorenz Steiner, 1997. "The Corporate Sell-Off Decision Of Diversified Firms," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 20(2), pages 231-241, June.
    12. Phillippe Desbrières & Alain Schatt, 2002. "The Impacts of LBOs on the Performance of Acquired Firms: The French Case," Journal of Business Finance & Accounting, Wiley Blackwell, vol. 29(5&6), pages 695-729.
    13. Sung C. Bae & Hoje Jo, 2002. "Consolidating Corporate Control: Divisional Versus Whole-Company Leveraged Buyouts," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 25(2), pages 247-262.
    14. Renneboog, Luc & Vansteenkiste, Cara, 2017. "Leveraged Buyouts : A Survey of the Literature," Discussion Paper 2017-015, Tilburg University, Center for Economic Research.
    15. Metrick, Andrew & Yasuda, Ayako, 2010. "Venture Capital and Other Private Equity: A Survey," Working Papers 11-06, University of Pennsylvania, Wharton School, Weiss Center.
    16. Baran, Lindsay C. & King, Tao-Hsien Dolly, 2010. "Going private transactions, bondholder returns, and wealth transfer effects," Journal of Banking & Finance, Elsevier, vol. 34(8), pages 1856-1872, August.
    17. Allen, Jeffrey W., 1998. "Capital markets and corporate structure: the equity carve-outs of Thermo Electron," Journal of Financial Economics, Elsevier, vol. 48(1), pages 99-124, April.
    18. Philippe Desbrières & Alain Schatt, 2002. "L'incidence des LBO sur la politique d'investissement et la gestion opérationnelle des firmes acquises:le cas français," Revue Finance Contrôle Stratégie, revues.org, vol. 5(4), pages 79-106, December.
    19. Alexander Peter Groh & Oliver Gottschalg, 2008. "The Opportunity Cost of Capital of US Buyouts," NBER Working Papers 14148, National Bureau of Economic Research, Inc.
    20. Van de Gucht, Linda M. & Moore, William T., 1998. "Predicting the duration and reversal probability of leveraged buyouts," Journal of Empirical Finance, Elsevier, vol. 5(4), pages 299-315, October.
    21. Valkama, Petri & Maula, Markku & Nikoskelainen, Erkki & Wright, Mike, 2013. "Drivers of holding period firm-level returns in private equity-backed buyouts," Journal of Banking & Finance, Elsevier, vol. 37(7), pages 2378-2391.

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