Working Paper: NBER ID: w19458
Authors: Steven J. Davis; John C. Haltiwanger; Kyle Handley; Ron S. Jarmin; Josh Lerner; Javier Miranda
Abstract: Private equity critics claim that leveraged buyouts bring huge job losses and few gains in operating performance. To evaluate these claims, we construct and analyze a new dataset that covers U.S. buyouts from 1980 to 2005. We track 3,200 target firms and their 150,000 establishments before and after acquisition, comparing them to controls defined by industry, size, age, and prior growth. Relative to controls, employment at target establishments falls 3 percent over two years post buyout and 6 percent over five years. However, target firms also create more new jobs at new establishments, and they acquire and divest establishments more rapidly. Considering all adjustment margins, relative net job loss at target firms is a modest one percent of employment over two years post buyout. In contrast, the sum of gross job creation and destruction at target firms exceeds that of controls by 14 percent of employment over two years. Buyouts also bring TFP gains at target firms and reductions in earnings per worker. Productivity gains arise mainly from an accelerated exit of less productive establishments and greater entry of more productive ones - that is, from a directed reallocation of jobs within target firms.
Keywords: Private Equity; Employment; Productivity
JEL Codes: D22; D24; J3; J63
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| private equity buyouts (G34) | employment at target establishments (J63) |
| private equity buyouts (G34) | total factor productivity (TFP) at target firms (D24) |
| closure of less productive establishments (J65) | total factor productivity (TFP) gains (O49) |
| opening of more productive establishments (O49) | total factor productivity (TFP) gains (O49) |
| employment at target establishments (J63) | net job loss (J63) |