Management Buy-outs (MBO) And It's Practice In China

MBO (Management Buy-out) refers that the company sells it's one division or subsidiary to the current Managers, or a private company is purchased by the current managers, it's one kind of "Leveraged Buy-out". At abroad, MBO was raised and developed with the development and withdraw of big corporations. But in China, MBO was raised and developed to solve the deep problems of our former economy structure.The problems are that the ownership of the enterprise is not clear, the owner can not supervise the enterprise, the managers are not fully encouraged to perform, as a result, the profit of the enterprise kept declining. In order to solve these problems, the government adopted series of measures, and these methods have already achieved some effects, but they also met other obstacles. At this moment, MBO was raised as the alternative to solve the above-mentioned problems.MBO has a positive influence on our country's economy: on one hand, it helps the government to adjust the state-owned assets and reallocate them to the most important industries which may affect people's living, what's more, it also provides more room for the civilian to invest. On the other hand, MBO can provide necessary capital for the construction of the national welfare system, this will keep the society more stable and it's good for the reformation. MBO also has very big influence on individual companies: it can solve the problem of how to encourage managers to perform better; it can also change the running structure of the enterprise, and at last, it helps the enterprise to adjust it's capital structure, to innovate during daily running. But as the MBO were conducted, they met a lot of problems from both the law side and the market side, for example, the government policies are not complete, the price is not reasonable, managers can not get enough capital, sacrifice justice for efficiency, and the immoral behavior of the managers.To solve the current problems, author suggests modify the laws and regulations written in the past, and make it suitable for economy development, for example, revise the "Corporate Law", allow normal company investing more than 50% of it's capital, allow normal company issuing high rate bonds without any limitation about the minimum net capital, the total amount a company can raise, and the recent three years profits, etc; revise the "Common Regulation for Loans" and "Insurance Law", allow banks and insurance companies investing on stocks according to the market economy principles. These modifications do not mean that there is no supervision on the market, but it means we lowering down the financial risks by adopting opening information and professional risk analyzing. To solve the problems from market side, we should enforce the construction of all kinds of intermediates and relevant employees; enlarge the methods for raising capitals; enforce the supervision and management on the market. And furthermore, we can also try to raise capitals abroad.At last, through analyzing the MBO of the MEMOREX, we can find the distance on laws, regulations and market between our country and the western world. And draw the conclusions: MBO can be a good alternative for our economy system reformation, especially for the ownership reformation of the state-owned enterprises. It has a positive influence on adjusting the state-owned assets. It can also help the state-owned enterprise to increase the profit. Therefore, we should improve from both law side and market side to make sure the development of MBO in our country, and let MBO contributes to our country's economic improvement.