The unethical exploitation of shareholders in management buyout transactions

Schadler, Frederick P.; Karns, Jack E.

doi:10.1007/bf00383215

Cited by 21 publications

(8 citation statements)

References 4 publications

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“…14 Lowenstein (1985) argues that, when management is the acquiring party, it may employ specific accounting techniques to depress the pre-announcement share price (see also Schadler and Karns, 1990). By manipulating dividends, refusing to meet with security analysts or even deliberately depressing earnings, managers can use the information asymmetry to their advantage prior to an MBO or IBO.…”

Section: The Undervaluation Hypothesismentioning

confidence: 95%

Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation

Renneboog

Simons

Wright

2007

Journal of Corporate Finance

210

118

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Section: The Undervaluation Hypothesismentioning

confidence: 95%

Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation

Renneboog

Simons

Wright

2007

Journal of Corporate Finance

210

118

View full text Add to dashboard Cite

“…12 Lowenstein (1985) argues that, when management is the acquiring party, it may employ specific accounting techniques to depress the pre-announcement share price (see also Schadler and Karns, 1990). By manipulating dividends, refusing to meet with security analysts or even deliberately depressing earnings, managers can use the information asymmetry to their advantage prior to an MBO or IBO.…”

Section: The Undervaluation Hypothesismentioning

confidence: 99%

Leveraged Public to Private Transactions in the UK

2005

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This paper examines the magnitude and the sources of the expected shareholder gains in UK public to private transactions (PTPs) in the second wave from 1997-2003. Pre-transaction shareholders on average receive a premium of 40% and the share price reaction to the PTP announcement is about 30%. The main sources of the shareholder wealth gains are undervaluation of the pre-transaction target firm, increased interest tax shields and incentive realignment. An expected reduction of free cash flows does not determine the premiums nor are PTPs a defensive reaction against a takeover.

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“…This problem may be exacerbated when listed corporations, especially smaller ones, find it troublesome to use the equity market to fund expansion, as it may be difficult to attract the interest of institutional shareholders, analysts, and fund managers. Lowenstein (1985) argues that, when the management is the acquiring party, it may employ specific accounting and finance techniques to depress the pre-announcement share price (Schadler and Karns (1990)). By manipulating dividends, manipulating balance sheets through asset revaluation, refusing to meet with security analysts or even deliberately depressing earnings, managers can use the information asymmetry to their advantage prior to an MBO.…”

Section: Undervaluation Hypothesismentioning

confidence: 99%

Leveraged Buyouts: A Survey of the Literature

Renneboog

Vansteenkiste²

2017

SSRN Journal

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This paper provides an exhaustive literature review of the motives for public-to-private LBO transactions. First, the paper develops the theoretical framework for the potential sources of value creation from going private: a distinction is made between the reduction in agency costs, stakeholder wealth transfers, tax benefits, transaction costs savings, takeover defense strategies, and corporate undervaluation. The paper then reviews and summarizes whether and how these theories have been empirically verified in the four different strands of literature in LBO research. These strands of literature are categorized by phase in the LBO transaction: Intent (of a buyout), Impact (of the LBO on the various stakeholders), Process (of restructuring after the leveraged buyout) and Duration (of retaining the private status). Then, the paper shows that in the first half of the 2000s, a public-to-private LBO wave re-emerged in the US, UK and Continental Europe, whose value vastly exceeded that of the 1980s US LBO wave. Finally, the paper provides suggestions for further research.

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The unethical exploitation of shareholders in management buyout transactions

Cited by 21 publications

References 4 publications

Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation

Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation

Leveraged Public to Private Transactions in the UK

Leveraged Buyouts: A Survey of the Literature

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