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The Wage and Employment Effects of Leveraged Buyouts in the UK

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Author Info

  • Kevin Amess
  • Mike Wright

Abstract

Using a unique hand-collected dataset, this study determines and quantifies the effects of LBOs (leveraged buyouts) on wages and employment in 1,350 LBOs. Based on an unbalanced panel 5,369 firms observed over the period 1999-2004, we find that all LBOs taken together have an insignificant effect on employment growth but have significantly lower wage growth than non-LBOs. Disaggregating LBOs we find: (1) wage growth is 0.31 of a percentage point lower for MBOs (management buyouts) and 0.97 of a percentage point lower for MBIs (management buy-ins); and (2) employment growth is 0.51 of a percentage point higher for MBOs and 0.81 of a percentage point lower for MBIs. The results indicate that MBOs and MBIs have a differing impact on firms' wage and employment behaviour and should not be treated as homogenous. The results are consistent with: (1) MBIs and MBOs involving the adjustment of wages to a more sustainable basis; (2) MBOs exploiting growth opportunities that lead to greater employment growth; and (3) MBIs not creating new employment opportunities.

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Bibliographic Info

Article provided by Taylor & Francis Journals in its journal International Journal of the Economics of Business.

Volume (Year): 14 (2007)
Issue (Month): 2 ()
Pages: 179-195

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Handle: RePEc:taf:ijecbs:v:14:y:2007:i:2:p:179-195

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Related research

Keywords: Private Equity; Management Buyouts; Management Buy-ins; Employment Demand; Wages;

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Citations

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Cited by:
  1. Goossens, L. & Manigart, S. & Meuleman, M., 2007. "The change of ownership after a buyout: Impact on performance," Vlerick Leuven Gent Management School Working Paper Series 2007-26, Vlerick Leuven Gent Management School.
  2. Steven J. Davis & John C. Haltiwanger & Kyle Handley & Ron S. Jarmin & Josh Lerner & Javier Miranda, 2013. "Private Equity, Jobs, and Productivity," NBER Working Papers 19458, National Bureau of Economic Research, Inc.
  3. Scellato, Giuseppe & Ughetto, Elisa, 2013. "Real effects of private equity investments: Evidence from European buyouts," Journal of Business Research, Elsevier, vol. 66(12), pages 2642-2649.
  4. Lehto, Eero & Böckerman, Petri, 2008. "Analysing the employment effects of mergers and acquisitions," Journal of Economic Behavior & Organization, Elsevier, vol. 68(1), pages 112-124, October.
  5. Patricia Crifo & Vanina Forget, 2012. "Think Global, invest responsible: why the private equity industry goes green," Working Papers hal-00672034, HAL.
  6. Erich Battistin & Paolo Bortoluzzi & Fabio Buttignon & Martina Serafini & Marco Vedovato, 2013. "The Effects of Private Equity on Targets: Majority versus Minority Investments," "Marco Fanno" Working Papers 0167, Dipartimento di Scienze Economiche "Marco Fanno".
  7. Tåg, Joacim, 2010. "The Real Effects of Private Equity Buyouts," Working Paper Series 851, Research Institute of Industrial Economics.
  8. Hiroyuki Taguchi & Taichi Yanagawa & Masashi Harita, 2012. "Impact of M&A on the Employment in Japanese Companies," Public Policy Review, Policy Research Institute, Ministry of Finance Japan, vol. 8(5), pages 581-608, November.
  9. Steven Davis & John Haltiwanger & Ron Jarmin & Josh Lerner & Javier Miranda, 2008. "Private Equity and Employment," Working Papers 08-07r, Center for Economic Studies, U.S. Census Bureau, revised Oct 2011.
  10. Kaplan, Steven N. & Strömberg, Per, 2009. "Leveraged Buyouts and Private Equity," SIFR Research Report Series 65, Institute for Financial Research.
  11. Wilson, Nick & Wright, Mike & Siegel, Donald S. & Scholes, Louise, 2012. "Private equity portfolio company performance during the global recession," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 193-205.
  12. Boucly, Quentin & Sraer, David & Thesmar, David, 2011. "Growth LBOs," Journal of Financial Economics, Elsevier, vol. 102(2), pages 432-453.
  13. Olsson, Martin & Tåg, Joacim, 2012. "Private Equity and Employees," Working Paper Series 906, Research Institute of Industrial Economics.
  14. Giancarlo Corsetti & Michael P. Devereux & John Hassler & Tim Jenkinson & Gilles Saint-Paul & Hans-Werner Sinn & Jan-Egbert Sturm & Xavier Vives, 2009. "Chapter 3: Private Equity," EEAG Report on the European Economy, CESifo Group Munich, vol. 0, pages 123-140, 02.
  15. Marco Pagano & Giovanni Pica, 2011. "Finance and Employment," CSEF Working Papers 283, Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy.
  16. Hiroyuki Taguchi & Taichi Yanagawa & Masashi Harita, 2010. "The Dynamic Impacts of M&A on Employment in Japan : Using Micro-data from the Financial Statements Statistics of Corporations by Industry," Microeconomics Working Papers 23114, East Asian Bureau of Economic Research.
  17. Kevin Amess & Mike Wright, 2012. "Leveraged buyouts, private equity and jobs," Small Business Economics, Springer, vol. 38(4), pages 419-430, May.
  18. Dirk Engel & Joel Stiebale, 2009. "Private Equity, Investment and Financial Constraints – Firm-Level Evidence for France and the United Kingdom," Ruhr Economic Papers 0126, Rheinisch-Westfälisches Institut für Wirtschaftsforschung, Ruhr-Universität Bochum, Universität Dortmund, Universität Duisburg-Essen.

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