Management Buyout Financing Problem

With the separation of ownership and management, there comes agency relationship. There are agency costs because of the different benefit and the asymmetric information between the owner and the manager. How to minimize agency costs is a dilemma with which each enterprise is faced. Some theories claim that the best way is to make the manager themselves become one of the owners so that their benefits will be connected with the owners'. MBO is an efficient approach to unify the owner and the manager. In 1980s, MBO was popular in western developed country and it has sprung up in our country recently. The character of MBO is that the purchaser is the manager in former enterprise who accomplished the transfer from manager to owners through the agency. On one hand, it will make a certain positive effect on the reformation of our state-owned enterprises. On the other hand, it is a mechanism under which the enthusiasm of the corporation managers will be greatly promoted and they can exert their abilities thoroughly. However, under the restriction of our present legal circumstances and capital market, there are much resistance for the implementation of MBO in our country. The validity of MBO in our country will rely on the improvement of finance system. At present, the greatest difficulty in the domestic MBO is finance arrangement because such huge fund is needed in the buyout that the managers of state-owned enterprises must turn to outside finance agency although the outside finance channel is obstructed. Unless the problem of MBO finance is solved, MBO would not have a good development in China.Considering the MBO finance experience in western country and the current situation of MBO in China, some pieces of advice are given about perfecting the MBO finance mechanism in China. The thesis is composed of four parts:The first part is about the summarization and significance of MBO to our country's enterprise system reformation. This part states briefly the definition ofMBO, the development of MBO in other countries of the world and the practical significance of MBO from a view of lowering the enterprise organization cost, improving the management level and optimizing the distribution of social resources.The second part compares the typical MBO finance modes in some countries. By analyzing MBO finance modes in U.S.A. U.K, Russia, Eastern Europe and Japan, the author summarizes the characteristics of MBO finance and related capital withdraws in these countries.The third part discusses the characteristics and restriction factors of MBO finance in China. In addition to the defects on finance system and outside finance market, this part discloses the lack of finance tools to our country's MBO.The fourth part is about the advice to perfect MBO finance system in China. From both of the theoretical and practical view, this part generally states how to perfect the structure of finance market, reform the finance policies and innovate the finance mode, as far as our country's current system, market conditions and foreign experience is concerned.