Another View: Private Equity Creates Value
Bronwyn Bailey, Ph.D. is the vice president of research at the Private Equity Growth Capital Council.
A recent Deal Professor column by Steven M. Davidoff attempts to set aside the political rhetoric and take a sober account of the private equity industry based upon “the best available research.” The column focused on a number of academic studies that provide empirical support that private equity-backed companies historically show lower default rates and little difference in employment trends relative to their peer companies. Additional studies support these findings and I agree with these claims.
The column also summarizes several other studies that demonstrate the value created by private equity’s ability to better align the interests of owners and managers – namely, more efficient use of capital and better corporate governance.
Despite all of this research, Mr. Davidoff was unwilling to draw a final conclusion about the industry, saying that “value creation has yet to be established” by empirical research.
Thankfully, there are additional studies on private equity by preeminent academics that I believe fit into the “best available research” rubric, the findings of which should allow Mr. Davidoff and others to draw a definitive conclusion about the industry’s ability to create value at the companies in which it invests.
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