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

90 Pages Posted: 28 Aug 2021 Last revised: 14 Feb 2022

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: December 24, 2021

Abstract

We show that private equity leveraged buyouts (LBOs) reduce perceived job quality despite not impacting average base pay. This appears to reflect higher risk for employees. Both job quality and employee incentive pay are more related to firm performance at private equity-owned companies than at public control firms, with 1% higher deal IRR associated with 0.7% more employee incentive pay. Also, higher leverage deals and employees with worse outside options and longer tenure drive the post-LBO satisfaction declines. Our results highlight how job quality is tied to job security and how ownership affects employees through mechanisms beyond base pay.

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 (December 24, 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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