Buyout Firms: Job Killers?

There’s some new research out contradicting PE industry claims that buyout firms create more jobs than they eliminate. And it comes from some of the most respected academics who study such things, including Steve Davis of the University of Chicago and Josh Lerner of Harvard Biz School. Preliminary info was presented yesterday at the American Enterprise Institute – a conservative think tank where Davis is a visiting scholar – with official results to be released at the World Economic Forum in Davos.

Lerner tells me that the preliminary disclosures were made “off-the-record,” but were nonetheless reported on this morning by another publication (which is where most of the following info comes from, as I wasn’t in DC yesterday):

Davis and Lerner’s initial results show that PE-backed companies keep employment levels on an even keel with competitors in year-one, but cut back in years two and three. It also found that certain sectors fare worse than others, with the pink slips being more attracted to retail than to manufacturing.

There might be very good reasons for the cutting – like salvaging troubled companies that would otherwise die – but the PE industry has spent a lot of time and lobbying effort on the notion that private equity is a net job creator. Any reputable research to the contrary could be problematic, particularly in Europe.

Audio and video from yesterday’s presentation will be up on the AEI website by Friday, although I don’t know if the “off-the-record” part will be there.