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The economic impact of private equity: what we know and what we would like to know

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  • Mike Wright
  • John Gilligan
  • Kevin Amess

Abstract

Private equity and management buyouts have been the subject of considerable controversy. There have been recent calls for more systematic evidence on the impact of private equity and buyouts. Yet there is already an extensive body of scientific evidence stretching back over the past two decades that provides a platform for understanding the current context. This article summarises what we know about private equity from a comprehensive review of approximately 100 studies from around the world under the following headings: the returns to investors; profitability and productivity; the drivers of effects on profitability and productivity; the impact on employment and wages; growth and investment strategies; the extent to which high leverage is associated with failure; the generation of gains from asset disposals (asset stripping); the reselling of assets within short periods of time (asset flipping); and whether the effects persist after private equity firms have exited. This scientific evidence indicates that private equity and buyouts bring particularly important economic and social benefits. What we would like to know about private equity and buyouts is discussed under five broad headings: the difference between the second wave of deals and the first wave; the nature of the fund and its impact on returns; the distinction between secondary and primary buyouts; the failure rate of buyouts; and the tax implications. Implications for policy and practitioners are also discussed.

Suggested Citation

  • Mike Wright & John Gilligan & Kevin Amess, 2008. "The economic impact of private equity: what we know and what we would like to know," Venture Capital, Taylor & Francis Journals, vol. 11(1), pages 1-21, March.
  • Handle: RePEc:taf:veecee:v:11:y:2008:i:1:p:1-21
    DOI: 10.1080/13691060802151887
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    References listed on IDEAS

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    1. Alexander Ljungqvist & Matthew Richardson, 2003. "The cash flow, return and risk characteristics of private equity," NBER Working Papers 9454, National Bureau of Economic Research, Inc.
    2. Douglas Cumming & Uwe Walz, 2010. "Private equity returns and disclosure around the world," Journal of International Business Studies, Palgrave Macmillan;Academy of International Business, vol. 41(4), pages 727-754, May.
    3. Andrew Metrick, 2010. "The Economics of Private Equity Funds," Review of Financial Studies, Society for Financial Studies, vol. 23(6), pages 2303-2341, June.
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    Cited by:

    1. Tåg, Joacim, 2010. "The Real Effects of Private Equity Buyouts," Working Paper Series 851, Research Institute of Industrial Economics.
    2. Spyros Arvanitis & Tobias Stucki, 2013. "The Impact of Venture Capital on the Persistence of Innovation Activities of Swiss Start-ups," KOF Working papers 13-332, KOF Swiss Economic Institute, ETH Zurich.
    3. Portmann, David & Mlambo, Chipo, 2010. "Private equity and venture capital in South Africa: A comparison of project financing decisions," MPRA Paper 42892, University Library of Munich, Germany, revised 16 Nov 2012.
    4. Fabio Bertoni & María Ferrer & José Martí, 2013. "The different roles played by venture capital and private equity investors on the investment activity of their portfolio firms," Small Business Economics, Springer, vol. 40(3), pages 607-633, April.
    5. F. Castellaneta & O. Gottschalg & M. Wright, 2012. "The Fruits Of Iterative Learning And Negative Performance Feedbacks: Evidence From Private Equity Backed Buyouts," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 12/770, Ghent University, Faculty of Economics and Business Administration.
    6. Michael Peneder, 2009. "The impact of venture capital on innovation behaviour and firm growth," Venture Capital, Taylor & Francis Journals, vol. 12(2), pages 83-107, November.
    7. Goergen, Marc & O׳Sullivan, Noel & Wood, Geoffrey, 2014. "The employment consequences of private equity acquisitions: The case of institutional buy outs," European Economic Review, Elsevier, vol. 71(C), pages 67-79.
    8. Spyros Arvanitis & Tobias Stucki, 2014. "The impact of venture capital on the persistence of innovation activities of start-ups," Small Business Economics, Springer, vol. 42(4), pages 849-870, April.

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