Do insiders time management buyouts and freezeouts to buy undervalued targets?

Jarrad Harford (), Jared Stanfield and Feng Zhang

Journal of Financial Economics, 2019, vol. 131, issue 1, 206-231

Abstract: We provide evidence that managers and controlling shareholders time management buyouts (MBOs) and freezeout transactions to take advantage of industry-wide undervaluation. Portfolios of industry peers of MBO and freezeout targets show significant alphas of around 1% per month over the 12-month period following the transaction. These returns are not explained by a battery of risk factors or empirical methodologies, but exhibit significant heterogeneity across deals. Additional tests show that, on average, abnormal returns to industry peers are a reliable proxy for those to the target firm. Further, MBOs and freezeouts are announced during troughs of industry profitability.

Keywords: Management buyouts; Freezeout acquisitions; Market timing; Conflicts of interest (search for similar items in EconPapers)
JEL-codes: G14 G34 (search for similar items in EconPapers)
Date: 2019
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:131:y:2019:i:1:p:206-231

DOI: 10.1016/j.jfineco.2017.12.010

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