Working Paper: NBER ID: w26371
Authors: Steven J. Davis; John C. Haltiwanger; Kyle Handley; Ben Lipsius; Josh Lerner; Javier Miranda
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.
Keywords: private equity; buyouts; employment; productivity; job reallocation
JEL Codes: D22; D24; G24; G34; J63; L25
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Post-buyout tightening of credit conditions (G21) | Employment growth (J23) |
| Post-buyout slowdown in GDP growth (E20) | Employment growth (J23) |
| Private equity buyouts (G34) | Employment at publicly listed firms (M51) |
| Private equity buyouts (G34) | Employment at privately held firms (L26) |
| Private equity buyouts in tight credit conditions (G32) | Productivity gains at target firms (D22) |
| Private equity groups (G24) | Employment growth (J23) |