The Employment Consequences of Private Equity Acquisitions: The Case of Institutional Buy Outs

39 Pages Posted: 1 Jul 2014 Last revised: 25 Dec 2016

See all articles by Marc Goergen

Marc Goergen

IE Business School, IE University; European Corporate Governance Institute (ECGI)

Noel O'Sullivan

Loughborough University - School of Business and Economics

Geoffrey Wood

University of Warwick - Warwick Business School

Date Written: June 27, 2014

Abstract

There is a growing controversy as to the impact of private equity acquisitions, especially in terms of their impact on employment and subsequent organizational performance. It has been suggested that closer owner supervision and the injection of a new management team revitalize the acquired organization and unlock dormant capabilities and value. However, both politicians and trade unionists suggest that private equity acquirers may significantly reallocate value away from employees to short term investors, typically through layoffs and reduced wages, which may undermine future organizational sustainability. This article investigates this in the context of a sample of institutional buy outs (IBOs) undertaken in the UK between 1997 and 2006. Specifically we examine the impact of IBOs on both employment and remuneration against two control groups of non-acquired firms. In designing our study we follow the empirical approach taken by Conyon et al (2001 and 2002) in investigating the employment consequences of regular takeovers. Our main finding is a significant loss in employment in firms subject to an IBO in the year immediately following the acquisition as well as lower wage rates, when compared to either of the two control groups. Furthermore, we find no evidence of a subsequent improvement either in productivity or profitability in the acquired businesses.

Keywords: Acquisitions; Employment; Institutional Buy Outs (IBOs); Private Equity

JEL Classification: G34; J30

Suggested Citation

Goergen, Marc and O'Sullivan, Noel and Wood, Geoffrey, The Employment Consequences of Private Equity Acquisitions: The Case of Institutional Buy Outs (June 27, 2014). European Economic Review (2014), 71, pp.67-79.; European Corporate Governance Institute (ECGI) - Finance Working Paper No. 428/2014. Available at SSRN: https://ssrn.com/abstract=2459890

Marc Goergen (Contact Author)

IE Business School, IE University ( email )

Finance Department
Maria de Molina, 12
Madrid, 28006
Spain

HOME PAGE: http://www.ie.edu/business-school/faculty-and-research/faculty/marc-goergen/

European Corporate Governance Institute (ECGI) ( email )

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

Noel O'Sullivan

Loughborough University - School of Business and Economics ( email )

Ashby Road
Loughborough
Leicestershire LE11, LE11 3TU
Great Britain
44 1509 223114 (Phone)

Geoffrey Wood

University of Warwick - Warwick Business School ( email )

Coventry CV4 7AL
United Kingdom

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