The (Heterogenous) Economic Effects of Private Equity Buyouts

University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-122

Posted: 9 Oct 2019 Last revised: 13 Jul 2021

See all articles by Steven J. Davis

Steven J. Davis

University of Chicago; National Bureau of Economic Research (NBER); Hoover Institution

John Haltiwanger

University of Maryland - Department of Economics; National Bureau of Economic Research (NBER); Institute for the Study of Labor (IZA)

Kyle Handley

University of California, San Diego (UCSD) - School of Global Policy & Strategy

Josh Lerner

Harvard Business School - Finance Unit; Harvard University - Entrepreneurial Management Unit; National Bureau of Economic Research (NBER)

Ben Lipsius

University of Michigan, College of Literature, Science and the Arts, Department of Economics, Students

Javier Miranda

US Census Bureau — Economy-Wide Statistics Division

Multiple version iconThere are 4 versions of this paper

Date Written: July 12, 2021

Abstract

The effects of private equity buyouts on employment, productivity, and job reallocation vary tremendously with macroeconomic and credit conditions, across private equity groups, and by type of buyout. We reach this conclusion by examining the most extensive database of U.S. buyouts ever compiled, encompassing thousands of buyout targets from 1980 to 2013 and millions of control firms. Employment shrinks 13% over two years after buyouts of publicly listed firms – on average, and relative to control firms – but expands 13% after buyouts of privately held firms. Post-buyout productivity gains at target firms are large on average and much larger yet for deals executed amidst tight credit conditions. A post-buyout tightening of credit conditions or slowing of GDP growth curtails employment growth and intra-firm job reallocation at target firms. We also show that buyout effects differ across the private equity groups that sponsor buyouts, and these differences persist over time at the group level. Rapid upscaling in deal flow at the group level brings lower employment growth at target firms.

Keywords: U.S. private equity buyouts; productivity, employment and job reallocation effects; credit conditions; differences across private equity groups

JEL Classification: D22,D24,G24,G34,J63,L25

Suggested Citation

Davis, Steven J. and Haltiwanger, John C. and Handley, Kyle and Lerner, Josh and Lipsius, Ben and Miranda, Javier, The (Heterogenous) Economic Effects of Private Equity Buyouts (July 12, 2021). University of Chicago, Becker Friedman Institute for Economics Working Paper No. 2019-122, Available at SSRN: https://ssrn.com/abstract=3465804 or http://dx.doi.org/10.2139/ssrn.3465804

Steven J. Davis (Contact Author)

University of Chicago ( email )

5807 S. Woodlawn Avenue
Chicago, IL 60637
United States
773-702-7312 (Phone)
773-702-0458 (Fax)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Hoover Institution

434 Galvez Mall
Stanford University
Stanford, CA 94305-6010
United States
773 251 1795 (Phone)

John C. Haltiwanger

University of Maryland - Department of Economics ( email )

College Park, MD 20742
United States
301-405-3504 (Phone)
301-405-3542 (Fax)

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Institute for the Study of Labor (IZA) ( email )

P.O. Box 7240
Bonn, D-53072
Germany

Kyle Handley

University of California, San Diego (UCSD) - School of Global Policy & Strategy ( email )

9500 Gilman Drive #0519
La Jolla, CA 92093-0519
United States

HOME PAGE: http://www.kylehandley.com

Josh Lerner

Harvard Business School - Finance Unit ( email )

Boston, MA 02163
United States
617-495-6065 (Phone)
617-496-7357 (Fax)

HOME PAGE: http://www.people.hbs.edu/jlerner/

Harvard University - Entrepreneurial Management Unit

Cambridge, MA 02163
United States

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Ben Lipsius

University of Michigan, College of Literature, Science and the Arts, Department of Economics, Students ( email )

611 Tappan Street
Ann Arbor, MI 48109-1220
United States

Javier Miranda

US Census Bureau — Economy-Wide Statistics Division ( email )

Washington, DC
United States

Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
661
PlumX Metrics