A controversial aspect of the management buyouts that were popular thr
oughout the 1980s is the potential for a conflict of interest to arise
when a manager bids to acquire the firm he manages. This study examin
es 184 management buyouts and reports three findings. First, returns t
o pre-buyout shareholders are greater when managers must bid against o
utside acquirers. Second, bid revisions in the face of competition exc
eed revisions due to shareholder litigation and negotiations with boar
ds. Third, the incidence of competition is negatively related to the p
re-buyout share holdings of managers.