be the result of cutbacks in R&D, advertising. Reduction in such discretionary items allegedly compromise the long-run competitive position of the firm in order to increase short-run cash flows. The ensuing table clearly shows that operating returns increase significantly during the private phase from the median of 0,239 in year-1. The median change to year +1 is 0,063, significant at the 5% level. The median rise from year-1 to year+2 (0,098, statically significant) suggests that returns are sustained. In contrast, median changes prior to the MBO are not significant. Industry adjusted returns follow this favorable trend too. The analysis of the asset-sale and non-sale subsample reinforces these claims, pointing out that higher growth in returns is not due solely to the sale of sluggish assets or branches. 26 Abbie J. Smith, Journal of Financial Economics , 1990
Bachelor’s degree t hesis in Economics and Business 5/7/2010 Flavio Benedetti 57 The ratio of cash flows to employees is significant at the 1% confidence level before and after adjusting for industry trends (results are similar for the subsamples too). On the other hand, the increase from year-1 to year+2 is not significant, but this might be imputable to the small number of observations. Above all, this augmented performance is not accompanied by meaningful reductions in the workforce (median changes are insignificant). Another crucial aspects is the management of working capital. As the table below shows, all figures hints us that working capital is tightened as a result of the transaction. The percentage change of Sales / WC is 24,2% from year year-1 to year+1, significant at the 1% level. Changes in such a ratio are not statistically different from zero prior to the MBO. The operating cycle 27 constantly shrinks: its median industry-adjusted percentage change is -18,5% (significant at the 5% level), hinting a reduction of almost two weeks from the pre-MBO level of 73,087 days 27 The operating cycle equals the inventory holding period plus the accounts receivable collection period less the accounts payable period
Bachelor’s degree t hesis in Economics and Business 5/7/2010 Flavio Benedetti 58 Panels C, D and E, tackling inventory holding periods, accounts receivables/ payables periods, feature Betas that all reinforce the previous allegations: inventory holding periods and account receivables have negative coefficients, while a positive Beta coupled with trade payables reveals a more diluted compensation of suppliers (the first two ratios are significant in the year-1 to year+1 period, while the latter one presents significance only prior to the buyout).
Bachelor’s degree t hesis in Economics and Business 5/7/2010 Flavio Benedetti 59 There are some concerns whether this more stringent management of working capital arises from a one-time effort. Evidence, however, shows us otherwise: the median changes in receivables, payables and inventories represent only 1% of the yearly median operating cash flows, while the growth in working capital from operations over operating assets (Beta amounting to 0,054 significant at the
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