Do private equity owned firms have better management practices?
AbstractWe use an innovative survey tool to collect management practice data from over 4,000 medium sized manufacturing firms across Asia, Europe and the US. These measures of managerial practice are strongly associated with firm-level performance (e.g. productivity, profitability and stock market value). Private Equityowned firms are significantly better managed than government, family and privately owned firms. Although they are also better managed on average than publicly listed firms with dispersed owners, this difference is not statistically significant. Looking at management practices in detail we find that Private Equity-owned firms have strong people management practices (hiring, firing, pay and promotions) but even stronger operations management practices (lean manufacturing, continuous improvement and monitoring). This suggests that Private Equity ownership is associated with broad based operational improvement in management rather than just stronger performance incentives. Finally, looking at changes in management practices over time, it appears that Private Equity targets poorly managed firms and these firms improve their management practices at a faster rate than other ownership types.
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Bibliographic InfoPaper provided by London School of Economics and Political Science in its series Open Access publications from London School of Economics and Political Science with number CEPOP24.
Date of creation: Jul 2009
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Other versions of this item:
- Nick Bloom & Raffaella Sadun & John Van Reenen, 2009. "Do Private Equity Owned Firms Have Better Management Practices?," CEP Occasional Papers 24, Centre for Economic Performance, LSE.
- L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
- M2 - Business Administration and Business Economics; Marketing; Accounting - - Business Economics
- O32 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Management of Technological Innovation and R&D
- O3 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-02-13 (All new papers)
- NEP-BEC-2010-02-13 (Business Economics)
- NEP-EFF-2010-02-13 (Efficiency & Productivity)
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