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      The Economic Effects of Private Equity Buyouts
      05 Nov 2019Working Paper Summaries

      The Economic Effects of Private Equity Buyouts

      by Steven J. Davis, John Haltiwanger, Kyle Handley, Ben Lipsius, Josh Lerner, and Javier Miranda
      Private equity buyouts are a major financial enterprise that critics see as dominated by rent-seeking activities with little in the way of societal benefits. This study of 6,000 US buyouts between 1980 and 2013 finds that the real side effects of buyouts on target firms and their workers vary greatly by deal type and market conditions.
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      Author Abstract

      We examine thousands of US 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, systematic 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.

      Paper Information

      • Full Working Paper Text
      • Working Paper Publication Date: October 2019
      • HBS Working Paper Number: HBS Working Paper #20-046
      • Faculty Unit(s): Finance; Entrepreneurial Management
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      Josh Lerner
      Josh Lerner
      Jacob H. Schiff Professor of Investment Banking
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      • Leveraged Buyouts
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