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Assessing the Impact of Management Buyouts on Economic Efficiency: Plant-Level Evidence from the United Kingdom

Richard Harris (), Donald Siegel () and Mike Wright

Rensselaer Working Papers in Economics from Rensselaer Polytechnic Institute, Department of Economics

Abstract: We assess the total factor productivity (TFP) of plants before and after management buyouts (MBOs), using the Annual Business Inquiry Respondents Database (ARD) file, which contains longitudinal data for approximately 36,000 U.K. manufacturing establishments. Our preliminary results suggest that these MBO establishments were less productive than comparable plants before the transfer of ownership. We also find that MBO plants experienced a substantial increase in productivity after a buyout. These post-buyout productivity gains appear to be pervasive across industries. The results imply that the improvement in economic performance may be due to measures undertaken by new owners or managers to reduce the labor intensity of production, through the outsourcing of intermediate goods and materials. Our evidence suggests that MBOs may be a useful mechanism for reducing agency costs and enhancing economic efficiency. More generally, the findings are consistent with recent theoretical and empirical evidence (Jovanovic and Rousseau (2002a, 2002b)) suggesting that takeovers result in the reallocation of a firm's resources to more efficient uses and to better managers.

New Economics Papers: this item is included in nep-mfd
Date: 2003-10
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