The (Heterogenous) Economic Effects of Private Equity Buyouts

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

No 26371, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: The effects of private equity buyouts on employment, productivity, and job reallocation vary tremendously with macroeconomic and credit conditions, across private equity groups, and by type of buyout. We reach this conclusion by examining the most extensive database of U.S. buyouts ever compiled, encompassing thousands of buyout targets from 1980 to 2013 and millions of control firms. Employment shrinks 12% over two years after buyouts of publicly listed firms – on average, and relative to control firms – but expands 15% after buyouts of privately held firms. Post-buyout productivity gains at target firms are large on average and much larger yet for deals executed amidst tight credit conditions. A post-buyout tightening of credit conditions or slowing of GDP growth curtails employment growth and intra-firm job reallocation at target firms. We also show that buyout effects differ across the private equity groups that sponsor buyouts, and these differences persist over time at the group level. Rapid upscaling in deal flow at the group level brings lower employment growth at target firms. We relate these findings to theories of private equity that highlight agency problems at portfolio firms and within the private equity industry itself.

JEL-codes: D22 D24 G24 G34 J63 L25 (search for similar items in EconPapers)
Date: 2019-10
New Economics Papers: this item is included in nep-lab
Note: CF PR LS
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Working Paper: The (heterogenous) economic effects of private equity buyouts (2022)
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