Abstract for:

Do Private Equity Owned Firms Have Better Management Practices?

Nick  Bloom,  Raffaella  Sadun,  John  Van Reenen,  July 2009
Paper No' CEPOP24: | Full paper

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Keywords: management practices and private equity

JEL Classification: L2;M2;O32;O3

Is hard copy/paper copy available? YES - Paper Copy Still In Print.

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This Paper is published under the following series: CEP Occasional Papers

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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 owned 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 Private Equity targets poorly managed firms and these firms improve their management practices at a faster rate than other ownership types.