Management Buyout and Empirical Research on MBO in China

Author: He Guanghui, Yang Xianyue
Publisher:
Publish Date: 2006-11-01
Features: This book analyzes the rapid development of Management Buyouts (MBO) abroad and its driving forces, along with the theoretical explanation of wealth creation. MBO in China has also been exceptionally active, giving rise to a variety of acquisition methods to circumvent policy restrictions. However, a comprehensive analysis and factor analysis of MBO-listed companies in the Shanghai and Shenzhen stock markets indicate that their operational performance is not particularly prominent, and their financial conditions show a tendency to deteriorate. This suggests that the three theoretical hypotheses of wealth creation through MBO are not valid, at least not convincingly. Event study empirical results show that MBO in China has not brought wealth to small and medium shareholders, nor has it been widely recognized by small and medium investors. MBO in China has not generated wealth creation effects, indicating that the management of state-owned enterprises is eager to acquire and is willing to take various risks to pursue "innovations" with Chinese characteristics. The underlying strong motivation is wealth transfer, meaning that the premium in MBO merely represents a transfer of wealth from other stakeholders to the management. To achieve the wealth creation value of MBO, it is necessary to improve and strengthen supervision, as well as enhance market constraints. Once the issue of wealth transfer is resolved, the problem of efficiency can be effectively addressed through market mechanisms.