Study On Feasibility Of Management Buy-Outs (MBO)

Management Buy-outs(MBO) arouses broad attention of government, corporations and academia because it infers the reform of state corporations and manager prompting system. People have different points about MBO's feasibility .So far there are about twenty public companies have implemented MBO in china. Many famous scholars such as Lu Manping and Wang Wei have begun to research on MBO, and found some support theory for it. But ministry of finance said "stop "to public company to carry out MBO in April 2003. Lately Lang Xianping, who is a professor of Hong Kong Chinese university, put forward an opponent opinion for MBO because of the loss of state assets. Now MBO has become an issue of economy field.In the context I try to deeply discuss the feasibility of MBO from two points. One is weather MBO does some favor for solving the agency problem of state enterprises. The other is what corporations have the qualification to implement MBO in practice.First, this paper try to analyze the economical essential that enterprises reform needs MBO from agency costs. By demonstration method I contrast the difference of agency costs in two ownerships, and prove that privately owned corporations are superior to state ones on control of in-service consumption of managers, and then support effectively the feasibility of MBO.Second, I try to build an evaluation system of object enterprises about MBO, which is the most important production. For this part of business line selection, I use proportion of governmental enterprises to total business line as index to measure competition of business line. And I sort domestic industry into three types, which are the most suitable business lines, the more suitable ones and unsuitable ones according to the proportion. For the part of management efficiency, I use three indexes of assets turnover ratio, accounts receivable turnover and inventory turnover ratio as well as give a definition of integrated efficiency ratio to evaluate the management efficiency of target enterprises. In the evaluation of cash flux stability, I take the free cash flux (FCF) as variable and get the difference coefficient of FCF in N years, then to judge the cash flux stabilization degree of the targetenterprises. In the evaluation of loan capacity, I use the ratio of asset liability and the ratio of stock right mortgage loan to give an integrated evaluation of the target enterprises' loan capability. In the part of management main body's qualification evaluation during MBO, I use the period that a key leader has been in the position and the ratio of management's contribution to evaluate the main body's qualification of the target enterprises.Finally, I use fuzzy mathematics to establish an evaluation model, and it has a high maneuverability and provides a powerful tool for the evaluation of MBO's feasibility.