Private equity and entrepreneurial management in management buy-outs

Ernst Verwaal

Research output: Contribution to journalArticle

16 Citations (Scopus)

Abstract

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.
Original languageEnglish
Pages (from-to)1-15
Number of pages15
JournalSmall Business Economics
Volumeforthcoming
DOIs
Publication statusPublished - 2013

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Management buyouts
Entrepreneurial management
Private equity
Financial leverage
Buy-outs
Management practices
Buy-out
Price strategy
Politicians
Profit
Organizational change

Cite this

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abstract = "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.",
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Private equity and entrepreneurial management in management buy-outs. / Verwaal, Ernst.

In: Small Business Economics, Vol. forthcoming, 2013, p. 1-15.

Research output: Contribution to journalArticle

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