Working Paper: NBER ID: w14331
Authors: Phillip Leslie; Paul Oyer
Abstract: We analyze the differences between companies owned by private equity (PE) investors and similar public companies. We document that PE-owned companies use much stronger incentives for their top executives and have substantially higher debt levels. However, we find little evidence that PE-owned firms outperform public firms in profitability or operational efficiency. We also show that the compensation and debt differences between PE-owned companies and public companies disappear over a very short period (one to two years) after the PE-owned firm goes public. Our results raise questions about whether and how PE firms and the incentives they put in place create value.
Keywords: Private Equity; Managerial Incentives; Value Creation; Operational Performance
JEL Codes: G3; J33; L20; M52
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| PE owned firms (L26) | higher equity ownership for top executives (M12) |
| PE owned firms (L26) | lower base salaries for highest paid executives (M12) |
| PE owned firms (L26) | higher variable pay share of cash compensation (J33) |
| PE owned firms (L26) | no significant differences in operational performance metrics (L25) |
| PE ownership (H43) | diminishing differences in managerial incentives after IPO (M12) |