Productivity

UK

The UK market has been studied in detail by Lavery, Tsoukalas and Wilson (2024), who use a comprehensive sample of 20-year UK PE buyout deal-level data from 2001 to 2022. The research, in conjunction with the Productivity Institute, finds that PE investment has a positive impact on business productivity. The authors estimate total factor productivity in PE-backed companies to increase by around 4% from the pre-to post-buyout period (up to four years before and after initial investment) relative to control firms. Similarly, labour productivity rises by around 5% relative to the control group from pre-to post-buyout. The study also finds statistically significant increases in employment and capital expenditures in PE-backed companies, compared to control firms supporting the notion that private equity unlocks the growth potential of target firms. Moreover, the analysis shows that the target firm's productivity is more resilient during economic downturns such as the Global Financial Crises and the COVID-19 pandemic in comparison to non-PE-backed firms.

In another study, Lavery and Wilson (2022) examined a sample of over 1,200 realised UK PE buyouts and found that the positive impact of PE ownership on target firm productivity persists after PE exit relative to control firms, highlighting the long-term implication of PE ownership on business productivity beyond the holding period.

Focusing on innovation and patenting, Amess, Stiebale, and Wright (2016) studied 407 UK private equity buyouts between 1998-2005 and measured post-buyout patent filling and citation activity as a measure of innovative productivity for at least three years after the buyout at target firms. They find a 6% increase in quality-adjusted patent stock three years after the buyout, but improvement in innovation is even stronger for private-to-private transactions, which experience a 14% increase in the quality-adjusted patent stock, and for portfolio companies in financially dependent industries.

Europe

In a pan-European study, examining 1,580 private equity buyout deals in emerging markets between 1992 and 2017, Biesinger, Bircan and Ljungqvist (2020) found substantial long-run (up to five years post-exit) increases in labour and capital productivity at target companies relative to control firms. 

US

Looking further afield to the US, and turning to venture capital, Akcigit, Dinlersoz, Greenwood and Penciakova (2019) develop an endogenous growth model to study the impact of VC investment on aggregate productivity and innovation. Their analysis uses US data for the period of 1980-2012. First, they examine the growth trajectory of VC-funded and non-VC- funded startups as measured by the evolution of employment and patenting activity and find that VC-backed companies tend to growth faster and be more innovative. This is turn leads to “large productive externalities” imposed on the rest of the economy. The authors estimate that without venture capital funding the aggregate growth would be lower by 28%. 

Continuing with VC research, Croce, Marti Pellon and Murtinu (2013) document, using a sample of 696 European startups, some of which are VC-backed, that following the first round of VC investment, productivity growth in VC-backed companies is significantly higher compared to non-VC-backed ones. Furthermore, the authors find that higher productivity growth remains evident relative to non-VC-backed companies even after the exit of VC investors.  

Global

Global studies that include cross-country comparisons and analyse the impact  of private equity at an industry level include Bernstein, Lerner, Sorensen and Strömberg (2010) who report that industries in OECD countries with prior private equity investment grow faster in terms of productivity than other industries and are less exposed to aggregate shocks.   

Aldatmaz and Brown (2019) investigate spillover effects within business sectors by studying the impact of private equity investment on publicly listed competitor firms operating in the same industry. They find that PE investment in an industry leads to an increase in labour productivity, employment growth and profitability across public companies within the same domestic industry. As non-PE-backed private companies are also likely to experience the positive spillover effects but were not included in the analysis due to data constrains, the authors point out they their results may underestimate the industry- wide, positive effects of PE investment. 

Gulliver and Jiang (2020) present a literature review on the impact of private equity buyouts on productivity and jobs on behalf of the Committee on Capital Markets Regulation. The review summarises 8 US-focused and 6 global studies published between 2005 and 2020 (some of which are highlighted above). They conclude that empirical literature shows that private equity buyouts in the U.S. and Europe have generally positive effects on productivity at target firms. Additionally, private equity exerts positive externalities on entire industries, generating productivity growth at competitor firms as well.