The Economic Effects of Private Equity Buyouts

68 Pages Posted: 9 Oct 2019

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 Michigan, Stephen M. Ross School of Business

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

U.S. Census Bureau - Center for Administrative Records Research and Applications

Multiple version iconThere are 4 versions of this paper

Date Written: October 4, 2019

Abstract

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.

Suggested Citation

Davis, Steven J. and Haltiwanger, John C. and Handley, Kyle and Lerner, Josh and Lipsius, Ben and Miranda, Javier, The Economic Effects of Private Equity Buyouts (October 4, 2019). 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)

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Kyle Handley

University of Michigan, Stephen M. Ross School of Business ( email )

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Josh Lerner

Harvard Business School - Finance Unit ( email )

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

Harvard University - Entrepreneurial Management Unit

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Ben Lipsius

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

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Javier Miranda

U.S. Census Bureau - Center for Administrative Records Research and Applications ( email )

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