Do Private Equity-owned Firms Have Better Management Practices?

Nicholas  Bloom; Raffaella  Sadun; John  Van Reenen

Chapter | The Global Economic Impact of Private Equity Report 2009 | 2009

Do Private Equity-owned Firms Have Better Management Practices?

by Nicholas Bloom, Raffaella Sadun and John Van Reenen

Abstract

We use an innovative survey tool to collect management practice data from over 4,000 medium sized manufacturing firms across Asia, Europe and the US. These measures of managerial practice are strongly associated with firm-level performance (e.g. productivity, profitability and stock market value). Private equity firms are significantly better managed than government, family and privately owned firms. Although they are also better managed on average than publicly listed firms with dispersed owners, this difference is not statistically significant. Looking at management practices in detail we find that private equity owned firms have strong people management practices (hiring, firing, pay and promotions) but even stronger operations management practices (lean manufacturing, continuous improvement and monitoring). This suggests that private equity ownership is associated with broad based operational improvement in management rather than just stronger performance incentives. Finally, looking at changes in management practices over time, it appears that PE targets poorly managed firms and these firms improve their management practices at a faster rate than other ownership types.

Keywords: Private Equity; Management Practices and Processes; Production; Private Ownership; Performance Improvement; Performance Productivity;

Format: Print

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Citation:

Bloom, Nicholas, Raffaella Sadun, and John Van Reenen. "Do Private Equity-owned Firms Have Better Management Practices?" Chap. 1 in The Global Economic Impact of Private Equity Report 2009, edited by Josh Lerner and Anuradha Gurung, 1–23. Globalization of Alternative Investments Working Papers. Geneva, Switzerland: World Economic Forum, 2009. (Slides.)

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Do Private Equity-owned Firms Have Better Management Practices?

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