The economic effects of private equity buyouts

Steven Davis, John Haltiwanger, Kyle Handley, Ben Lipsius (), Josh Lerner and Javier Miranda
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Ben Lipsius: University of Michigan

No 2021-013, Jena Economics Research Papers from Friedrich-Schiller-University Jena

Abstract: We examine thousands of U.S. private equity (PE) buyouts from 1980 to 2013, a period that saw huge swings in credit market tightness and GDP growth. Our results show striking, syste matic differences in the real-side effects of PE buyouts, depending on buyout type and external conditions. Employment at target firms shrinks 13% over two years in buyouts of publicly listed firms but expands 13% in buyouts of privately held firms, both relative to contemporaneous outcomes at control firms. Labor productivity rises 8% at targets over two years post buyout (again, relative to controls), with large gains for both public-to-private and private-to-private buyouts. Target productivity gains are larger yet for deals executed amidst tight credit conditions. A post-buyout widening of credit spreads or slowdown in GDP growth lowers employment growth at targets and sharply curtails productivity gains in public-to-private and divisional buyouts. Average earnings per worker fall by 1.7% at target firms after buyouts, largely erasing a pre-buyout wage premium relative to controls. Wage effects are also heterogeneous. In these and other respects, the economic effects of private equity vary greatly by buyout type and with external conditions.

Keywords: Private equity buyouts; business cycle; business dynamics; real effects; job creation; productivity; wages; administrative data; large matched sample (search for similar items in EconPapers)
JEL-codes: D22 D24 G24 G34 J63 L25 (search for similar items in EconPapers)
Date: 2021-08-23
New Economics Papers: this item is included in nep-cwa, nep-fdg, nep-isf and nep-lab
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