Politically Connected Private Equity and Employment
Purdue University - Krannert School of Management; Centre for Economic Policy Research (CEPR); European Corporate Governance Institute (ECGI)
Scott H. C. Hsu
University of Wisconsin - Milwaukee
September 12, 2013
We investigate the employment consequences of private equity buyouts. We find that, on average, buyouts by politically connected private equity firms are associated with higher job creation at the establishments operated by their target firms than buyouts by non-connected private equity firms. Consistent with an exchange of favors story, establishments operated by targets of politically connected private equity firms increase employment more during election years, in states with high levels of corruption, and in swing states. Further, the likelihood that the incumbent will be re-elected increases as employment increases. We also provide evidence of specific benefits experienced by target firms from their political connections. Our conclusions are corroborated by a number of tests designed to mitigate specific selection concerns, including placebo tests of unsuccessful takeover attempts.
Number of Pages in PDF File: 49
Keywords: Private Equity, Political Connections, Employment
JEL Classification: G24, G3, J23
Date posted: July 5, 2013 ; Last revised: June 9, 2015
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