Private Equity in the Global Economy: Evidence on Industry Spillovers

Saturday December 15, 2012

Using a novel dataset on global private equity investments in 19 industries across 48 countries, I find that following private equity investments employment, profitability, and labor productivity increase for publicly listed companies in the same country and industry. This suggests that positive externalities created by private equity firms are absorbed by other companies within the same industry. These effects are more pronounced in countries with stronger legal institutions, where private equity companies can better implement their value-adding strategies. Furthermore, the results are concentrated in countries with moderate levels of innovative capacities, which are shown to be the best absorbers of productivity spillovers in studies on spillovers from foreign direct investments. I further find that capital expenditures of public firms also grow faster subsequent to private equity investments. On the financial side, I provide evidence that industry stock market returns increase after the industry receives venture capital, while buyout investments lead to higher debt levels within the industry.

Condensed version: Does Private Equity Hurt or Help the Economy?, By Serdar Aldatmaz and Gregory W. Brown, 2012.