IDEAS home Printed from https://ideas.repec.org/p/hbs/wpaper/10-045.html
   My bibliography  Save this paper

Private Equity and Industry Performance

Author

Listed:
  • Shai Bernstein

    (Harvard Business School)

  • Josh Lerner

    (Harvard Business School, Finance Unit, EM Unit)

  • Morten Sørensen

    (Columbia Business School)

  • Per Strömberg

    (Stockholm School of Economics - Department of Finance)

Abstract

The growth of the private equity industry has spurred concerns about its potential impact on the economy more generally. This analysis looks across nations and industries to assess the impact of private equity on industry performance. Industries where PE funds have invested in the past five years have grown more quickly in terms of productivity and employment. There are few significant differences between industries with limited and high private equity activity. It is hard to find support for claims that economic activity in industries with private equity backing is more exposed to aggregate shocks. The results using lagged private equity investments suggest that the results are not driven by reverse causality. These patterns are not driven solely by common law nations such as the United Kingdom and United States, but also hold in Continental Europe.

Suggested Citation

  • Shai Bernstein & Josh Lerner & Morten Sørensen & Per Strömberg, 2010. "Private Equity and Industry Performance," Harvard Business School Working Papers 10-045, Harvard Business School.
    • Handle: RePEc:hbs:wpaper:10-045
    as

    Download full text from publisher

    File URL: http://www.hbs.edu/research/pdf/10-045.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Nicholas Bloom & Raffaella Sadun & John Van Reenen, 2015. "Do Private Equity Owned Firms Have Better Management Practices?," American Economic Review, American Economic Association, vol. 105(5), pages 442-446, May.
    2. Magnus Blomström & Ari Kokko & Mario Zejan, 2000. "Multinational Corporations and Spillovers," Palgrave Macmillan Books, in: Foreign Direct Investment, chapter 8, pages 101-133, Palgrave Macmillan.
    3. Steven N. Kaplan & Antoinette Schoar, 2005. "Private Equity Performance: Returns, Persistence, and Capital Flows," Journal of Finance, American Finance Association, vol. 60(4), pages 1791-1823, August.
    4. Nick Bloom & Carol Propper & Stephan Seiler & John Van Reenen, 2010. "Management practices in the NHS," CentrePiece - The magazine for economic performance 305, Centre for Economic Performance, LSE.
    5. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-329, May.
    6. Imbens, Guido W & Angrist, Joshua D, 1994. "Identification and Estimation of Local Average Treatment Effects," Econometrica, Econometric Society, vol. 62(2), pages 467-475, March.
    7. Samuel Kortum & Josh Lerner, 2000. "Assessing the Contribution of Venture Capital to Innovation," RAND Journal of Economics, The RAND Corporation, vol. 31(4), pages 674-692, Winter.
    8. Baker, George P. & Wruck, Karen H., 1989. "Organizational changes and value creation in leveraged buyouts : The case of the O.M. Scott & Sons Company," Journal of Financial Economics, Elsevier, vol. 25(2), pages 163-190, December.
    9. Steven N. Kaplan & Jeremy C. Stein, 1993. "THE EVOLUTION OF BUYOUT PRICING AND FINANCIAL STRUCTURE (OR, WHAT WENT WRONG) IN THE 1980s," Journal of Applied Corporate Finance, Morgan Stanley, vol. 6(1), pages 72-88, March.
    10. Kaplan, Steven, 1989. "The effects of management buyouts on operating performance and value," Journal of Financial Economics, Elsevier, vol. 24(2), pages 217-254.
    11. Cao, Jerry & Lerner, Josh, 2009. "The performance of reverse leveraged buyouts," Journal of Financial Economics, Elsevier, vol. 91(2), pages 139-157, February.
    12. repec:bla:jfinan:v:53:y:1998:i:5:p:1443-1493 is not listed on IDEAS
    13. Steven J. Davis & John Haltiwanger & Kyle Handley & Ron Jarmin & Josh Lerner & Javier Miranda, 2014. "Private Equity, Jobs, and Productivity," American Economic Review, American Economic Association, vol. 104(12), pages 3956-3990, December.
    14. Steven Kaplan & Antoinette Schoar, 2003. "Private Equity Performance: Returns, Persistence and Capital," NBER Working Papers 9807, National Bureau of Economic Research, Inc.
    15. Ulf Axelson & Tim Jenkinson & Per Stromberg, 2008. "Leverage and Pricing in Buyouts: An Empirical Analysis," Economics Series Working Papers 2008fe20, University of Oxford, Department of Economics.
    16. Robert S. Harris & Tim Jenkinson & Steven N. Kaplan, 2014. "Private Equity Performance: What Do We Know?," Journal of Finance, American Finance Association, vol. 69(5), pages 1851-1882, October.
    17. Chevalier, Judith A, 1995. "Capital Structure and Product-Market Competition: Empirical Evidence from the Supermarket Industry," American Economic Review, American Economic Association, vol. 85(3), pages 415-435, June.
    18. John, Kose & Lang, Larry H P & Netter, Jeffry, 1992. "The Voluntary Restructuring of Large Firms in Response to Performance Decline," Journal of Finance, American Finance Association, vol. 47(3), pages 891-917, July.
    19. Chevalier, Judith A, 1995. "Do LBO Supermarkets Charge More? An Empirical Analysis of the Effects of LBOs on Supermarket Pricing," Journal of Finance, American Finance Association, vol. 50(4), pages 1095-1112, September.
    20. Steven N. Kaplan & Jeremy C. Stein, 1993. "The Evolution of Buyout Pricing and Financial Structure in the 1980s," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(2), pages 313-357.
    21. Muscarella, Chris J & Vetsuypens, Michael R, 1990. "Efficiency and Organizational Structure: A Study of Reverse LBOs," Journal of Finance, American Finance Association, vol. 45(5), pages 1389-1413, December.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Andrew Metrick & Ayako Yasuda, 2011. "Venture Capital and Other Private Equity: a Survey," European Financial Management, European Financial Management Association, vol. 17(4), pages 619-654, September.
    2. Tåg, Joacim, 2010. "The Real Effects of Private Equity Buyouts," Working Paper Series 851, Research Institute of Industrial Economics.
    3. Charlie Weir & Peter Jones & Mike Wright, 2015. "Public to private transactions, private equity and financial health in the UK: an empirical analysis of the impact of going private," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 19(1), pages 91-112, February.
    4. Arcot, Sridhar & Fluck, Zsuzsanna & Gaspar, José-Miguel & Hege, Ulrich, 2015. "Fund managers under pressure: Rationale and determinants of secondary buyouts," Journal of Financial Economics, Elsevier, vol. 115(1), pages 102-135.
    5. Troy D. Smith, 2015. "Private Equity Investment in India: Efficiency vs Expansion," Discussion Papers 15-011, Stanford Institute for Economic Policy Research.
    6. Josh Lerner, 2011. "The Future of Private Equity," European Financial Management, European Financial Management Association, vol. 17(3), pages 423-435, June.
    7. Steven J. Davis & John C. Haltiwanger & Kyle Handley & Ben Lipsius & Josh Lerner & Javier Miranda, 2021. "The economic effects of private equity buyouts," Jena Economics Research Papers 2021-013, Friedrich-Schiller-University Jena.
    8. Renneboog, Luc & Vansteenkiste, Cara, 2017. "Leveraged Buyouts : A Survey of the Literature," Discussion Paper 2017-015, Tilburg University, Center for Economic Research.
    9. Ulf Axelson & Tim Jenkinson & Per Strömberg & Michael S. Weisbach, 2013. "Borrow Cheap, Buy High? The Determinants of Leverage and Pricing in Buyouts," Journal of Finance, American Finance Association, vol. 68(6), pages 2223-2267, December.
    10. Alexander Peter Groh & Oliver Gottschalg, 2008. "The Opportunity Cost of Capital of US Buyouts," NBER Working Papers 14148, National Bureau of Economic Research, Inc.
    11. Gompers, Paul A. & Kaplan, Steven N. & Mukharlyamov, Vladimir, 2022. "Private equity and Covid-19," Journal of Financial Intermediation, Elsevier, vol. 51(C).
    12. Cao, Jerry & Lerner, Josh, 2009. "The performance of reverse leveraged buyouts," Journal of Financial Economics, Elsevier, vol. 91(2), pages 139-157, February.
    13. Paul Lavery & John Tsoukalas & Nick Wilson, 2024. "Private equity financing & firm productivity," Working Papers 041, The Productivity Institute.
    14. Brown, David T. & Fee, C. Edward & Thomas, Shawn E., 2009. "Financial leverage and bargaining power with suppliers: Evidence from leveraged buyouts," Journal of Corporate Finance, Elsevier, vol. 15(2), pages 196-211, April.
    15. Valentin Haddad & Erik Loualiche & Matthew Plosser, 2017. "Buyout Activity: The Impact of Aggregate Discount Rates," Journal of Finance, American Finance Association, vol. 72(1), pages 371-414, February.
    16. Tykvová, Tereza & Borell, Mariela, 2012. "Do private equity owners increase risk of financial distress and bankruptcy?," Journal of Corporate Finance, Elsevier, vol. 18(1), pages 138-150.
    17. Cronqvist, Henrik & Fahlenbrach, Rüdiger, 2013. "CEO contract design: How do strong principals do it?," Journal of Financial Economics, Elsevier, vol. 108(3), pages 659-674.
    18. Phillip Leslie & Paul Oyer, 2008. "Managerial Incentives and Value Creation: Evidence from Private Equity," NBER Working Papers 14331, National Bureau of Economic Research, Inc.
    19. Ayash, Brian & Schütt, Harm, 2016. "Does going private add value through operating improvements?," Journal of Corporate Finance, Elsevier, vol. 40(C), pages 192-215.
    20. Cesare Fracassi & Alessandro Previtero & Albert Sheen, 2022. "Barbarians at the Store? Private Equity, Products, and Consumers," Journal of Finance, American Finance Association, vol. 77(3), pages 1439-1488, June.

    More about this item

    JEL classification:

    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:hbs:wpaper:10-045. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: HBS (email available below). General contact details of provider: https://edirc.repec.org/data/harbsus.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.