Publication details for Professor Paul Westhead

Howorth, C., Westhead, P. & Wright, M. (2004). Buyouts, information asymmetry and the family management dyad. Journal of Business Venturing 19(4): 509-534.

• Publication type: Journal papers: academic
• ISSN/ISBN: 0883-9026
• DOI: 10.1016/j.jbusvent.2003.04.002
• Keywords: Family firm; Management buyout; Information asymmetry; Deal negotiation; Trust
• View online: Online version
• Durham research online: DRO record

Author(s) from Durham

• Professor Paul Westhead

Abstract

Management buyouts (MBOs) and buyins (MBIs) are an alternative solution to the private family firm ownership succession issue. It is typically assumed that MBO/MBIs of private family firms progress more smoothly than other types of MBO/MBI, due to fewer information asymmetries and closer relationships between the parties involved. This study provides novel evidence from eight private family firms that had selected an MBO or an MBI. The myths surrounding the succession issues of family firms who have selected an MBO/MBI are specifically explored. The MBO/MBI process is examined within an agency theory framework with particular emphasis on the balance of information and the relationships between vendors and purchasers. Complementary theoretical frameworks relating to trust and negotiation behavior are utilized. Interviews were held with former family owners as well as the current members of the MBO/MBI teams. Triangulation of opinions was considered, thus strengthening the validity of presented results. The case studies confirmed that information asymmetries were widespread, providing opportunities for the parties with more information to negotiate a price and structure the deal to their advantage. Good relationships and trust between the vendor and MBO/MBI team mitigated information asymmetries. Where the MBO/MBI was part of the family firm's long-term strategy, there were fewer information asymmetries, and knowledge transfer was facilitated.