Do Employees Cheer for Private Equity? The Heterogeneous Effects of Buyouts on Job Quality

93 Pages Posted: 28 Aug 2021 Last revised: 29 Oct 2021

See all articles by Will Gornall

Will Gornall

University of British Columbia (UBC) - Sauder School of Business

Oleg Gredil

Tulane University - A.B. Freeman School of Business

Sabrina T Howell

New York University (NYU) - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Xing Liu

University of British Columbia (UBC) - Sauder School of Business

Jason Sockin

University of Pennsylvania

Date Written: October 27, 2021

Abstract

We examine how private equity investments affect job quality. Leveraged buyouts (LBOs) – unlike standard M&A or growth equity deals – reduce employee satisfaction with compensation, work-life balance, firm culture, and senior management. These effects are driven by longer-tenured and lower-skill workers, and by high-leverage deals. However, reported pay is unaffected for most workers, while managers earn substantially more incentive pay. Using deal-level cash-flow return data, we find that LBOs have more IRR pass-through to employee satisfaction than mimicking public equity investments, with 1% higher IRR associated with 0.7% more incentive pay. Overall, LBOs appear to lead to both more rent-sharing with employees and increased job insecurity, particularly in high-leverage deals.

Keywords: private equity, leveraged buyouts, job quality, employees, corporate culture, non-pecuniary amenities, implicit contracts

JEL Classification: G24, G32, J31, J32

Suggested Citation

Gornall, Will and Gredil, Oleg and Howell, Sabrina T and Liu, Xing and Sockin, Jason, Do Employees Cheer for Private Equity? The Heterogeneous Effects of Buyouts on Job Quality (October 27, 2021). Available at SSRN: https://ssrn.com/abstract=3912230 or http://dx.doi.org/10.2139/ssrn.3912230

Will Gornall

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
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Oleg Gredil

Tulane University - A.B. Freeman School of Business ( email )

7 McAlister Drive
New Orleans, LA 70118
United States

Sabrina T Howell (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

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Suite 9-160
New York, NY NY 10012
United States
212-998-0913 (Phone)

HOME PAGE: http://www.sabrina-howell.com

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

Xing Liu

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada

Jason Sockin

University of Pennsylvania ( email )

Philadelphia, PA 19104
United States

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