DIVESTMENT MANAGEMENT BUY-OUTS IN JAPAN: PERFORMANCE, GOVERNANCE, AND BUSINESS STRATEGIES OF SELLER FIRMS

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Abstract

This study has examined cases of management buyouts (MBOs), which have been increasing rapidly in number since around 2000. First, an overview of MBO practices is provided, indicating the beginning of an increase in divestment-type MBOs as a new means to implement corporate restructuring. Subsequently, the factors used by Japanese companies to decide on whether to pursue divestment MBO were analyzed while particularly addressing the parent companies––the sellers of the business units. Results suggest the following factors leading to the parent company divestment of subsidiaries and business units through MBOs: 1) poor performance of the business of the parent company, 2) high debt-to-asset ratio (debt reliance) of the parent company, 3) wide diversification of parent company operations, and 4) active reorganization of the parent company’s corporate group. The structure of corporate governance also affects MBO trends, indicating that 5) companies for which shareholding ratios of institutional investors and directors are high are more likely to implement a divestment MBO. Conversely, 6) companies that are protected by cross-shareholdings are less likely to implement corporate restructuring.

Keywords: MBO, Divestment, Corporate Governance, Business Strategy, Count Data, Panel Data

How to cite this paper: Kawamoto, S. & Saito, T. (2009). Divestment management buy-outs in Japan: performance, governance, and business strategies of seller firms. Corporate Ownership & Control, 7(2-2), 244-259. https://doi.org/10.22495/cocv7i2c2p1