The Economic Effects of Private Equity Buyouts
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, systematic 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.
Davis, Haltiwanger, Handley, and Lerner are affiliates of the National Bureau of Economic Research. Haltiwanger was also a part-time Schedule A employee at the U.S. Census Bureau during the preparation of this paper. We thank Ron Jarmin, Steve Kaplan, Ann Leamon, Antoinette Schoar (discussant), and Kirk White for helpful comments, as well as seminar participants at the American Economic Association 2019 annual meeting, Georgia Tech, Harvard Law School, the Hoover Institution, MIT, and the NBER Productivity Lunch Group. Alex Caracuzzo, Stephen Moon, Cameron Khansarinia, Ayomide Opeyemi, Christine Rivera, Kathleen Ryan, and James Zeitler provided painstaking research assistance. Per Strömberg generously gave permission to use transaction data collected as part of our World Economic Forum project. We thank the Harvard Business School’s Division of Research, the Private Capital Research Institute, the Ewing Marion Kauffman Foundation, and especially the Smith Richardson Foundation for generous research support. Opinions and conclusions expressed herein are those of the authors and do not necessarily represent the views of the U.S. Census Bureau. All results have been reviewed to ensure that no confidential information is disclosed (DRB-B0109-CDAR-2018718, DRB-B0110-CDAR-2018-0718, DRB-B0020-CED-20181128, DRB-B0018-CED-20181126, and CBDRB-FY19-CMS-8034). Lerner periodically receives compensation for advising institutional investors in private equity funds, private equity groups, corporate venturing groups, and governments designing policies related to private equity. All errors and omissions are our own. The views expressed herein are those of the authors and do not necessarily reflect the views of the National Bureau of Economic Research.
Steven J. Davis
I own more than $5,000 in stock of Charles River Associates. I own Millennium Economics LLC.
- Outcomes differ systematically across buyout type and with macroeconomic and credit conditions at the time of and after the buyout....