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Finance and management buyouts: Agency versus entrepreneurship perspectives

Author

Listed:
  • Mike Wright
  • Robert E. Hoskisson
  • Lowell W. Busenitz
  • Jay Dial

Abstract

Agency theory, the predominant theoretical lens employed to examine leveraged buyouts, focuses on buyouts principally as a governance and control device. This view is especially useful in evaluating mature firms where discipline, incentives and limits to managerial discretion serve to mitigate the destruction or the downside of firm value. In contrast, an entrepreneurial view of buyouts is introduced, which incorporates upside incentives for growth and improvements not associated with pure efficiency gains or more effective monitoring to curtail opportunism. Investors such as venture capitalists in the UK and LBO associations in the US are increasingly investing in buyouts to realize entrepreneurial opportunities. Understanding how entrepreneurs make decisions with greater reliance on cognitive biases and heuristics provides an insightful lens for understanding why different types of buyouts occur. These perspectives provide a view of buyouts as a vehicle for strategic innovation and renewal that fosters upside growth opportunities in a variety of buyout types which heretofore have not been incorporated into buyout theory. Finally, research issues are discussed to facilitate future conceptual development and empirical testing of the upside as well as the downside of buyouts.

Suggested Citation

  • Mike Wright & Robert E. Hoskisson & Lowell W. Busenitz & Jay Dial, 2001. "Finance and management buyouts: Agency versus entrepreneurship perspectives," Venture Capital, Taylor & Francis Journals, vol. 3(3), pages 239-261, July.
  • Handle: RePEc:taf:veecee:v:3:y:2001:i:3:p:239-261
    DOI: 10.1080/13691060110060646
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    Citations

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    Cited by:

    1. Anne-Laure Le Nadant & Frédéric Perdreau, 2011. "LBOs and innovation: the French case," Post-Print halshs-00669910, HAL.
    2. Saam, Nicole J., 2007. "Asymmetry in information versus asymmetry in power: Implicit assumptions of agency theory?," Journal of Behavioral and Experimental Economics (formerly The Journal of Socio-Economics), Elsevier, vol. 36(6), pages 825-840, December.
    3. Douglas Cumming & Sofia Johan, 2006. "Provincial preferences in private equity," Financial Markets and Portfolio Management, Springer;Swiss Society for Financial Market Research, vol. 20(4), pages 369-398, December.
    4. Anne-Laure Le Nadant & Frédéric Perdreau, 2011. "Do Private Equity Firms Foster Innovation? Evidence from French LBOs," Post-Print halshs-00773693, HAL.
    5. Richard A. Hunt & Bret Fund, 2012. "Reassessing the Practical and Theoretical Influence of Entrepreneurship Through Acquisition," Journal of Entrepreneurial Finance, Pepperdine University, Graziadio School of Business and Management, vol. 16(1), pages 29-56, Spring.
    6. Cumming, Douglas, 2007. "Government policy towards entrepreneurial finance: Innovation investment funds," Journal of Business Venturing, Elsevier, vol. 22(2), pages 193-235, March.
    7. Cumming, Douglas & Johan, Sofia, 2007. "Regulatory harmonization and the development of private equity markets," Journal of Banking & Finance, Elsevier, vol. 31(10), pages 3218-3250, October.
    8. Amess, Kevin & Stiebale, Joel & Wright, Mike, 2015. "The impact of private equity on firms' innovation activity," DICE Discussion Papers 184, University of Düsseldorf, Düsseldorf Institute for Competition Economics (DICE).
    9. Cumming, Douglas J. & MacIntosh, Jeffrey G., 2003. "A cross-country comparison of full and partial venture capital exits," Journal of Banking & Finance, Elsevier, vol. 27(3), pages 511-548, March.
    10. Cumming, Douglas J., 2005. "Agency costs, institutions, learning, and taxation in venture capital contracting," Journal of Business Venturing, Elsevier, vol. 20(5), pages 573-622, September.
    11. Mertens, Raphael, 2003. "Der Nachfolge-MBO/MBI mit einem Finanzier als Budget-Breaker," Manuskripte aus den Instituten für Betriebswirtschaftslehre der Universität Kiel 575, Christian-Albrechts-Universität zu Kiel, Institut für Betriebswirtschaftslehre.
    12. repec:kap:jmgtgv:v:21:y:2017:i:3:d:10.1007_s10997-016-9364-2 is not listed on IDEAS
    13. repec:eee:corfin:v:45:y:2017:i:c:p:31-63 is not listed on IDEAS
    14. Fabio Bertoni & María Ferrer & José Martí, 2013. "The different roles played by venture capital and private equity investors on the investment activity of their portfolio firms," Small Business Economics, Springer, vol. 40(3), pages 607-633, April.
    15. Curtiss, Jarmila & Medonos, Tomas & Ratinger, Tomas, 2005. "Ownership Form Effect on Large-Scale Farms' Performance: Case of Czech Agriculture," 94th Seminar, April 9-10, 2005, Ashford, UK 24435, European Association of Agricultural Economists.
    16. Cumming, Douglas & Fleming, Grant & Schwienbacher, Armin, 2006. "Legality and venture capital exits," Journal of Corporate Finance, Elsevier, vol. 12(2), pages 214-245, January.

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