Private equity and entrepreneurial management in management buy-outs
Critics claim that short-term profit orientation and high deal price strategies of private equity (PE) firms can negatively affect the ability of management buyouts to initiate and sustain entrepreneurial management. This study investigates this claim by comparing effects of majority PE backed and other buy-outs at different levels of financial leverage on post buy-out increases in entrepreneurial management. We propose that PE can be used as an organizational refocusing device that simultaneously increases entrepreneurial and administrative management. We find that majority PE-backed buy-outs significantly increase entrepreneurial management practices. Furthermore, the increased financial leverage positively affects administrative management in management buy-outs. However, the effect of high financial leverage is larger for majority PE-backed buy-outs. These results support the notion that PE firms help buy-out companies develop ambidextrous organizational change: i.e. simultaneously develop entrepreneurial and administrative management practices. The findings have important implications for practitioners and policy makers.
|Keywords||Buyout, Entrepreneurship, Private equity|
|JEL||Investment Banking; Venture Capital; Brokerage; Ratings and Ratings Agencies (jel G24), Mergers; Acquisitions; Restructuring; Corporate Governance (jel G34), Entrepreneurship (jel L26)|
|Persistent URL||dx.doi.org/10.1007/s11187-011-9386-8, hdl.handle.net/1765/26894|
|Series||ERIM Top-Core Articles|
|Journal||Small Business Economics: an entrepreneurship journal|
Bruining, J, Verwaal, E, & Wright, D.M. (2013). Private equity and entrepreneurial management in management buy-outs. Small Business Economics: an entrepreneurship journal, 40(3), 591–605. doi:10.1007/s11187-011-9386-8