The (Heterogenous) Economic Effects of Private Equity Buyouts

91 Pages Posted: 14 Oct 2019 Last revised: 23 Jul 2022

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; National Bureau of Economic Research (NBER)

Ben Lipsius

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

Josh Lerner

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

Javier Miranda

US Census Bureau — Economy-Wide Statistics Division

Multiple version iconThere are 4 versions of this paper

Date Written: October 2019

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.

Suggested Citation

Davis, Steven J. and Haltiwanger, John C. and Handley, Kyle and Lipsius, Ben and Lipsius, Ben and Lerner, Josh and Miranda, Javier, The (Heterogenous) Economic Effects of Private Equity Buyouts (October 2019). NBER Working Paper No. w26371, Available at SSRN: https://ssrn.com/abstract=3469398

Steven J. Davis (Contact Author)

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John C. Haltiwanger

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Kyle Handley

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

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National Bureau of Economic Research (NBER)

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Ben Lipsius

Department of Economics ( email )

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University of Michigan, College of Literature, Science and the Arts, Department of Economics, Students ( 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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National Bureau of Economic Research (NBER)

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Javier Miranda

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

Washington, DC
United States

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