The Operational Consequences of Private Equity Buyouts: Evidence from the Restaurant Industry
Stanford Graduate School of Business
University of Oregon - Department of Finance
December 8, 2013
Rock Center for Corporate Governance at Stanford University Working Paper No. 156
Do private equity buyouts disrupt company operations to maximize short-term goals? We document significant operational changes in 103 restaurant chain buyouts between 2002 and 2012 using health inspection records for over 50,000 stores in Florida. Store-level operational practices improve after private equity buyout, as restaurants become cleaner, safer, and better maintained. Supporting a causal interpretation, this effect is stronger in chain-owned stores than in franchised locations -- “twin restaurants” over which private equity owners have limited control. Private equity targets also reduce employee headcount, lower menu prices, and experience a lower likelihood of store closures -- a proxy for poor financial performance. These changes to store-level operations require monitoring, training, and better alignment of worker incentives, suggesting PE firms improve management practices throughout the organization.
Number of Pages in PDF File: 49
Keywords: Private Equity, Management Practices, Operational Performance, Restaurant Industry, Franchisees
JEL Classification: G24, G34, J24, J28, M11, M54
Date posted: October 8, 2013 ; Last revised: January 13, 2014
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