The (Heterogeneous) Economic Effects of Private Equity Buyouts

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 12% over two years after buyouts of publicly listed firms—on average, and relative to control firms—but expands 15% after buyouts of privately held firms. Postbuyout productivity gains at target firms are large on average and much larger yet for deals executed amid tight credit conditions. A postbuyout tightening of credit conditions or slowing of gross domestic product growth curtails employment growth and intrafirm 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. We relate these findings to theories of private equity that highlight agency problems at portfolio firms and within the private equity industry itself. This paper was accepted by David Sraer, finance. Funding: This work was supported by Harvard Business School’s Division of Research, the Ewing Marion Kauffman Foundation, the Smith Richardson Foundation [Grant no. 2014-0136], and the Private Capital Research Institute. Supplemental Material: The online appendix is available at https://doi.org/10.1287/mnsc.2021.03890 .