Conflicts of interest arise in management buyouts (MBOs) and freezeouts: the acquirers (managers and controlling shareholders) have an incentive to pay the lowest price to selling shareholders, despite having a fiduciary duty to them. Such conflicts of interest could lead to unfair treatment of public shareholders. For instance, in the buyout of the Dell Inc. by its founder and CEO Michael Dell in 2013, some investors believed that “management swoops in to get a good deal right before there’s a change in the business” (Hoffman, 2016). This, and other anecdotal examples suggest that even if they plan to create value post acquisition, managers have incentives to not only negotiate lower premiums (relative to the current market price) but also to initiate deals when the firm is undervalued.

Do managers and controlling shareholders initiate MBOs and freezeouts when the target firm is undervalued? The question is difficult to answer because one cannot observe the value path of the target had it not been acquired. In our article, Do Insiders Time Management Buyouts and Freezeouts to Buy Undervalued Targets?, we circumvent this difficulty by examining the value path of the target’s industry peers following MBO and freezeout announcements.

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