Empirical essays on performance of management buyouts

Tutuncu, Lokman (2015). Empirical essays on performance of management buyouts. University of Birmingham. Ph.D.

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Abstract

This thesis investigates value creation in MBO transactions and the effect of earnings management on the perceived performance improvements following buyout. Various samples of buyouts are used to examine earnings management and performance, however, especial attention is given to private-to-private MBOs. We find that MBOs and private equity sponsors generate little additional value after controlling for selection bias. MBO performance peaks in the year preceding MBO, a result that could indicate practice of earnings management before MBO transactions. Further analysis of accounting numbers reveals that managers of private firms inflate earnings prior to MBO. The earnings management practice and resulting accrual reversals have substantial impact on the subsequent performance. We also show that earnings management is mainly practiced by private non-family firms while family firms do not engage in earnings management prior to MBO transaction. The presence of a private equity investor in the team tends to constrain practice of earnings management in MBOs, while private equity investors tend to inflate earnings at the time of exit. Overall, the results suggest that value gains or losses subsequent to buyout do not fully reflect operational activities. Selective investment strategies of private equity funds and earnings management influence performance. Key to understanding performance is the distinct managerial and ownership motivations for undertaking an MBO that vary across different types of buyouts.

Type of Work:

Thesis (Doctorates > Ph.D.)

Award Type:

Doctorates > Ph.D.

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