The Effect of Management Buyouts on Firm-level Technical Inefficiency: Evidence from a Panel of UK Machinery and Equipment Manufacturers

The longer-term technical efficiency effects of management buyouts (MBOs) are evaluated using a stochastic production frontier approach on a panel of UK manufacturing firms. The results, based on the period 1986-1997, indicate that firms with the MBO governance structure: (1) have higher efficiency in the two years before the transaction but not prior to that; (2) have efficiency 7%, 7.5%, 4%, and 7% higher in each of the first four years post-buyout; (3) do not have superior efficiency beyond the fifth year post-buyout. This is consistent with MBOs creating managerial incentives that improve firm-level performance.