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Manager Divestment in Leveraged Buyouts

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  • James Ang
  • Irena Hutton
  • Mary Anne Majadillas

Abstract

We examine changes in managers' investment in the firm around leveraged buyouts and find agency costs counter to those described in extant literature. In majority of deals during 1997–2008, managers divested a portion of their pre†LBO shareholdings while maintaining an ownership stake in the post†LBO firm. Such divestment opportunities encourage managers to behave in a way that benefits existing shareholders but is costly to new investors. We report a positive relation between management's divestment and pre†LBO earnings management, market timing, and better buyout pricing. Although managerial divestment also leads to subpar post†buyout performance, the involvement of private equity mitigates it.

Suggested Citation

  • James Ang & Irena Hutton & Mary Anne Majadillas, 2014. "Manager Divestment in Leveraged Buyouts," European Financial Management, European Financial Management Association, vol. 20(3), pages 462-493, June.
    • Handle: RePEc:bla:eufman:v:20:y:2014:i:3:p:462-493
    DOI: 10.1111/j.1468-036X.2013.12018.x
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    3. Tereza Tykvová, 2018. "Venture capital and private equity financing: an overview of recent literature and an agenda for future research," Journal of Business Economics, Springer, vol. 88(3), pages 325-362, May.

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