An Empirical Research On The Market Effect And Financial Performance Of The Management Buyouts

Management Buyouts had a history of nearly40years in Western countries likeThe United States and Britain, and had a history of over10years in North Europeancountries with economies in transition, as well as Russia. From the foreign theoreticalresearch and experience, MBO is indeed able to motivate the management to fully tapthe potential of the company, improve operating efficiency, enhance market value,increase the shareholders’ wealth and thus make a positive difference on the countries’economic development.In China, Management Buyouts as a means of innovating the enterprise propertyright system, has revealed many difficulties and also exposed the defects that theinformation disclosure is irregular and the trade is between insiders since it has beenintroduced into China in1997. It has caused widespread controversy about whetherMBO can bring the wealth effect and improve financial performance or not. The oneswho support MBO believe that to a certain extent, MBO can solve the problem ofownership and incentive restraint mechanisms, clear the company’s property rights,restructure and innovate management and improve operating efficiency. Whileopponents think that the environment in our country is not suitable. Although MBO canreduce the agent cost, motivate the management, the phenomenon of insider control isstill not be solved. So MBO cannot bring market effect and the operating performanceof the company isn’t be improved, or even appear to drop significantly.This paper makes a comprehensive analysis and research on MBO about twoaspects, that is the market effect and the operating performance, and finally makes someconstructive suggestions on MBO. In the theoretical research part, the paper firstreviews the development of MBO and related literature. Then the paper reviews theconcept and features and theoretical foundations. And in the empirical part, the paperselect listed companies from the year1997to2010that conduct MBO and collectstheir relevant financial data. Based on a statistical analysis of these data, using theEvent-study Methodology, Factor Analysis, DEA, the paper studies the market effect ofMBO and its influence on the operating performance of the targeted company.Through both theoretical and empirical analysis, we find that MBO in Chinadoesn’t bring wealth effect to the shareholders and the financial performance isn’timproved. It suggests that we should speed up the construction of the capital market, improve the construction of relevant legal system, establish market-oriented pricingmechanism and optimize the financing system of MBO, to bring the positive effect ofMBO into play. And finally make MBO to be an effective way to improve corporategovernance mechanism and enhance the firm value.