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When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education

Author

Listed:
  • Charlie Eaton
  • Sabrina T Howell
  • Constantine Yannelis
  • Francesca Cornelli

Abstract

We study how private equity buyouts create value in higher education, a sector with opaque product quality and intense government subsidy. With novel data on 88 private equity deals involving 994 schools, we show that buyouts lead to higher tuition and per-student debt. Exploiting loan limit increases, we find that private equity-owned schools better capture government aid. After buyouts, we observe lower education inputs, graduation rates, loan repayment rates, and earnings among graduates. Neither school selection nor student body changes fully explain the results. The results indicate that in a subsidized industry, maximizing value may not improve consumer outcomes.Authors have furnished an Internet Appendix, which is available on the Oxford University Press Web site next to the link to the final published paper online.

Suggested Citation

  • Charlie Eaton & Sabrina T Howell & Constantine Yannelis & Francesca Cornelli, 2020. "When Investor Incentives and Consumer Interests Diverge: Private Equity in Higher Education," The Review of Financial Studies, Society for Financial Studies, vol. 33(9), pages 4024-4060.
    • Handle: RePEc:oup:rfinst:v:33:y:2020:i:9:p:4024-4060.
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    File URL: http://hdl.handle.net/10.1093/rfs/hhz129
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    Citations

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    Cited by:

    1. Looney, Adam & Yannelis, Constantine, 2019. "How useful are default rates? Borrowers with large balances and student loan repayment," Economics of Education Review, Elsevier, vol. 71(C), pages 135-145.
    2. Goodman, Sarena & Isen, Adam & Yannelis, Constantine, 2021. "A day late and a dollar short: Liquidity and household formation among student borrowers," Journal of Financial Economics, Elsevier, vol. 142(3), pages 1301-1323.
    3. Catherine, Sylvain & Yannelis, Constantine, 2023. "The distributional effects of student loan forgiveness," Journal of Financial Economics, Elsevier, vol. 147(2), pages 297-316.
    4. Atul Gupta & Sabrina T Howell & Constantine Yannelis & Abhinav Gupta, 2024. "Owner Incentives and Performance in Healthcare: Private Equity Investment in Nursing Homes," The Review of Financial Studies, Society for Financial Studies, vol. 37(4), pages 1029-1077.
    5. Sakshi Sharma & Kunjana Malik & Manmeet Kaur & Neha Saini, 2023. "Mapping research in the field of private equity: a bibliometric analysis," Management Review Quarterly, Springer, vol. 73(1), pages 61-89, February.
    6. Aleksandar Andonov & Roman Kräussl & Joshua Rauh & Stijn Van Nieuwerburgh, 2021. "Institutional Investors and Infrastructure Investing [Pension fund asset allocation and liability discount rates]," The Review of Financial Studies, Society for Financial Studies, vol. 34(8), pages 3880-3934.
    7. Shai Bernstein & Josh Lerner & Filippo Mezzanotti, 2020. "Private Equity and Portfolio Companies: Lessons from the Global Financial Crisis," Journal of Applied Corporate Finance, Morgan Stanley, vol. 32(3), pages 21-42, September.
    8. Lauren Russell, 2021. "Price Effects of Nonprofit College and University Mergers," The Review of Economics and Statistics, MIT Press, vol. 103(1), pages 88-101, March.
    9. Looney, Adam & Yannelis, Constantine, 2022. "The consequences of student loan credit expansions: Evidence from three decades of default cycles," Journal of Financial Economics, Elsevier, vol. 143(2), pages 771-793.
    10. Duncombe, Samuel & Park, Min & Tarsalewska, Monika & Trojanowski, Grzegorz, 2023. "ESG positioning in private infrastructure fundraising," International Review of Financial Analysis, Elsevier, vol. 90(C).
    11. Douglas Cumming & Satish Kumar & Weng Marc Lim & Nitesh Pandey, 2023. "Mapping the venture capital and private equity research: a bibliometric review and future research agenda," Small Business Economics, Springer, vol. 61(1), pages 173-221, June.

    More about this item

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G38 - Financial Economics - - Corporate Finance and Governance - - - Government Policy and Regulation
    • H52 - Public Economics - - National Government Expenditures and Related Policies - - - Government Expenditures and Education
    • I2 - Health, Education, and Welfare - - Education
    • J01 - Labor and Demographic Economics - - General - - - Labor Economics: General

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