Are Target Shareholders Systematically Exploited in Management Buyouts and Freezeouts?

2017/07/10 hits:3491

Date: July 10th, Monday, 2017

Start Time: 10:00

Venue:  Room 422, Business School Building

Speaker: Prof. Feng Zhang

About Speaker

Prof. Feng Zhang , assisant professor of School of Business University of Utha, had pulished several papers in Review of Financial Studies、Journal of Financial Economics、Management Science、Critical Finance Review. His articles are fetured in world famous media, such as Harvard Business Review, Wall Street Journal, Reuters, New York Times, BBC World Radio, CBC .


We provide evidence that managers and controlling shareholders time 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 first twelve months following the transaction. These returns are not explained by a battery of risk-factors, including a takeover-risk factor. In contrast, abnormal returns are not observed following armslength third-party acquisitions. Additional tests show that abnormal returns to industry peers are a reliable proxy for those to the target firm. Investors appear to be unaware of the industry-wide undervaluation when the MBO or freezeout bid is announced. Target shareholders receive bid premiums comparable to those of arms-length third-party acquisitions, and industry peers of MBO and freezeout targets have insignificant returns around the announcement.