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Private Equity, Jobs, and Productivity

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  • 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.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 19458.

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Date of creation: Sep 2013
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Handle: RePEc:nbr:nberwo:19458

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  1. Richard Harris & Donald S. Siegel & Mike Wright, 2003. "Assessing the Impact of Management Buyouts on Economic Efficiency: Plant-Level Evidence from the United Kingdom," Rensselaer Working Papers in Economics 0304, Rensselaer Polytechnic Institute, Department of Economics.
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  3. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254.
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  5. Karen H. Wruck, 1991. "What Really Went Wrong At Revco?," Journal of Applied Corporate Finance, Morgan Stanley, vol. 4(2), pages 79-92.
  6. John Haltiwanger & Ron S. Jarmin & Javier Miranda, 2010. "Who Creates Jobs? Small vs. Large vs. Young," Working Papers 10-17, Center for Economic Studies, U.S. Census Bureau.
  7. Lucia Foster & Cheryl Grim & John Haltiwanger, 2013. "Reallocation In The Great Recession: Cleansing Or Not?," Working Papers 13-42, Center for Economic Studies, U.S. Census Bureau.
  8. Steven J. Davis & John Haltiwanger & Ronald S. Jarmin & C.J. Krizan & Javier Miranda & Alfred Nucci & Kristin Sandusky, 2009. "Measuring the Dynamics of Young and Small Businesses: Integrating the Employer and Nonemployer Universes," NBER Chapters, in: Producer Dynamics: New Evidence from Micro Data, pages 329-366 National Bureau of Economic Research, Inc.
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  12. Ricardo J. Caballero, 2007. "Specificity and the Macroeconomics of Restructuring," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262033623, December.
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  14. 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.
  15. Bertrand, M. & Mullainathan, S., 1998. "Is there Discretion in Wage Setting? A Test Using Takeover Legislation," Papers 203, Princeton, Woodrow Wilson School - Public and International Affairs.
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Citations

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Cited by:
  1. Albert N. Link & Christopher J. Ruhm & Donald S. Siegel, 2012. "Private Equity and the Innovation Strategies of Entrepreneurial Firms: Empirical Evidence from the Small Business Innovation Research Program," NBER Working Papers 18297, National Bureau of Economic Research, Inc.
  2. Tåg, Joacim, 2010. "The Real Effects of Private Equity Buyouts," Working Paper Series 851, Research Institute of Industrial Economics.
  3. Shai Bernstein & Josh Lerner & Morten Sørensen & Per Strömberg, 2010. "Private Equity and Industry Performance," Harvard Business School Working Papers 10-045, Harvard Business School.
  4. Tykvová, Tereza & Borell, Mariela, 2011. "Do private equity owners increase risk of financial distress and bankruptcy?," ZEW Discussion Papers 11-076, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.
  5. Ferreira, Daniel & Manso, Gustavo & Silva, André C., 2010. "Incentives to Innovate and the Decision to Go Public or Private," CEPR Discussion Papers 7750, C.E.P.R. Discussion Papers.
  6. 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.
  7. Norbäck, Pehr-Johan & Persson, Lars & Tag, Joacim, 2012. "Buying to Sell: Private Equity Buyouts and Industrial Restructuring," CEPR Discussion Papers 8992, C.E.P.R. Discussion Papers.
  8. Borell, Mariela & Heger, Diana, 2013. "Sources of value creation through private equity-backed mergers and acquisitions: The case of buy-and-build strategies," ZEW Discussion Papers 13-094, ZEW - Zentrum für Europäische Wirtschaftsforschung / Center for European Economic Research.

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