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Do private equity owned firms have better management practices?

  • Nick Bloom
  • Raffaella Sadun
  • John Van Reenen

We 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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File URL: http://eprints.lse.ac.uk/25482/
File Function: Open access version.
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Paper provided by London School of Economics and Political Science, LSE Library in its series LSE Research Online Documents on Economics with number 25482.

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Length: 29 pages
Date of creation: Jul 2009
Date of revision:
Handle: RePEc:ehl:lserod:25482
Contact details of provider: Postal: LSE Library Portugal Street London, WC2A 2HD, U.K.
Phone: +44 (020) 7405 7686
Web page: http://www.lse.ac.uk/

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  1. Steven J. Davis & John C. Haltiwanger & Ron S. Jarmin & Josh Lerner & Javier Miranda, 2011. "Private Equity and Employment," NBER Working Papers 17399, National Bureau of Economic Research, Inc.
  2. Muscarella, Chris J & Vetsuypens, Michael R, 1990. " Efficiency and Organizational Structure: A Study of Reverse LBOs," Journal of Finance, American Finance Association, vol. 45(5), pages 1389-1413, December.
  3. Robert E. Lucas Jr., 1978. "On the Size Distribution of Business Firms," Bell Journal of Economics, The RAND Corporation, vol. 9(2), pages 508-523, Autumn.
  4. Philippe Aghion & Nicholas Bloom & Richard Blundell & Rachel Griffith & Peter Howitt, 2002. "Competition and Innovation: An Inverted U Relationship," NBER Working Papers 9269, National Bureau of Economic Research, Inc.
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