Abstract

Buyouts have been perceived historically as an organizational efficiency tool to streamline organizational processes, reduce workforces and decrease unit costs (e.g. Jensen, 1986). In contrast to this efficiency perspective, an entrepreneurial view of buyouts incorporates upside incentives for growth and improvements not associated with pure efficiency gains. (Wright, Hoskisson & Busenitz, 2001). Venture capital (VC) firms are increasingly investing in buyouts to realize entrepreneurial growth opportunities. This entrepreneurial perspective, however, has been largely neglected in empirical studies looking at buyouts.

The main research question in this study is how the use of debt instruments, managerial ownership and VC involvement are related to the entrepreneurial versus efficiency orientation of the buyout firm. Debt arrangements, managerial ownership and VC monitoring are the major mechanisms used to reduce agency costs in buy-out transaction (Cotter & Peck, 2001). To date, however, no studies have examined whether these incentive mechanisms have an impact on the entrepreneurial orientation of the firm.

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