Institutions and the real effects of private equity buyouts: A meta-analysis

Abstract

Research Summary This study reviews four decades of fragmented and contradictory empirical literature on the real effects of private equity (PE) buyouts on portfolio companies, differentiating between efficiency and growth outcomes. We hypothesize how institutional forces, including regulatory, cognitive, and normative institutions explain heterogeneity in post-buyout efficiency and growth across time and countries. We argue that competition and population-level learning have shifted the cognitive frame underlying value creation in buyouts from financial engineering toward operational engineering and strategic entrepreneurship. Using meta-analysis, we find support for several of our hypotheses using samples from 66 empirical studies across the finance, management, economics, and entrepreneurship disciplines.

Managerial Summary This study delves into four decades of fragmented private equity (PE) literature to unravel the practical implications for post-buyout efficiency and growth. Using meta-analysis, we explore the role of institutional forces—regulatory, cognitive, and normative—in shaping outcomes across diverse temporal and geographical contexts. We observe an overall paradigm shift in PE value creation over time, transitioning from focusing on financial engineering to operational value creation and strategic entrepreneurship. This transformation is driven by heightened competition and widespread population-level learning. Validating our hypotheses through a thorough examination of 66 empirical studies spanning finance, management, economics, and entrepreneurship disciplines, our findings offer insights for policymakers and practitioners navigating the nuanced landscape of PE buyouts.