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The economic effects of private equity buyouts

Author

Listed:
  • Steven J. Davis

    (University of Chicago, and NBER)

  • John C. Haltiwanger

    (University of Maryland, and NBER)

  • Kyle Handley

    (University of Michigan, and NBER)

  • Ben Lipsius

    (University of Michigan)

  • Josh Lerner

    (Harvard Business School, and NBER)

  • Javier Miranda

    (Friedrich-Schiller University Jena and Halle Institute for Economic Research (IWH))

Abstract

We examine thousands of U.S. private equity (PE) buyouts from 1980 to 2013, a period that saw huge swings in credit market tightness and GDP growth. Our results show striking, syste matic differences in the real-side effects of PE buyouts, depending on buyout type and external conditions. Employment at target firms shrinks 13% over two years in buyouts of publicly listed firms but expands 13% in buyouts of privately held firms, both relative to contemporaneous outcomes at control firms. Labor productivity rises 8% at targets over two years post buyout (again, relative to controls), with large gains for both public-to-private and private-to-private buyouts. Target productivity gains are larger yet for deals executed amidst tight credit conditions. A post-buyout widening of credit spreads or slowdown in GDP growth lowers employment growth at targets and sharply curtails productivity gains in public-to-private and divisional buyouts. Average earnings per worker fall by 1.7% at target firms after buyouts, largely erasing a pre-buyout wage premium relative to controls. Wage effects are also heterogeneous. In these and other respects, the economic effects of private equity vary greatly by buyout type and with external conditions.

Suggested Citation

  • Steven J. Davis & John C. Haltiwanger & Kyle Handley & Ben Lipsius & Josh Lerner & Javier Miranda, 2021. "The economic effects of private equity buyouts," Jena Economic Research Papers 2021-013, Friedrich-Schiller-University Jena.
  • Handle: RePEc:jrp:jrpwrp:2021-013
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    More about this item

    Keywords

    Private equity buyouts; business cycle; business dynamics; real effects; job creation; productivity; wages; administrative data; large matched sample;
    All these keywords.

    JEL classification:

    • D22 - Microeconomics - - Production and Organizations - - - Firm Behavior: Empirical Analysis
    • D24 - Microeconomics - - Production and Organizations - - - Production; Cost; Capital; Capital, Total Factor, and Multifactor Productivity; Capacity
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • J63 - Labor and Demographic Economics - - Mobility, Unemployment, Vacancies, and Immigrant Workers - - - Turnover; Vacancies; Layoffs
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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