Private Equity and Productivity: Evidence from Europe

Abstract

In Private Equity and Productivity: Evidence from Europe (2025), Boni and Schneider provide one of the most comprehensive empirical assessments to date of how private equity (PE) ownership affects firm-level productivity. Using a new dataset of over 10,000 European PE transactions linked with detailed firm-level accounting data, the authors document a 15% decline in total factor productivity (TFP) in the five years following a PE buyout, compared to matched control firms. This decline is driven by strong input expansion: capital rises by +21% and labor by +23%, while output grows only modestly (+7%). The paper reveals that PE ownership triggers rapid firm growth and investment, but often at the cost of short-term efficiency.

Introduction

Private equity has become a dominant force in global finance, managing more than $14 trillion in assets as of 2024. While PE’s financial influence is undisputed, its real economic consequences remain less well understood. This paper addresses that gap by systematically analyzing how PE investments affect productivity, a key driver of long-term economic growth.

The study asks a simple yet vital question: Do private equity buyouts make firms more productive?

Data and Methodology

Boni and Schneider compile a unique, hand-matched dataset linking Preqin’s deal-level information with firm financials from Bureau van Dijk’s Orbis Historical Database. The sample covers over 10,000 PE-backed firms across 27 European countries (plus the UK, Norway, Switzerland, and others) from 2000–2019.

Each PE target is matched with up to five similar non-PE “twin” firms using propensity-score matching based on size, leverage, and profitability.

Productivity is measured via the Solow residual approach from a Cobb-Douglas production function, with firm-level Total Factor Productivity (TFP) serving as the primary outcome. The causal effect of PE ownership is estimated using a staggered Difference-in-Differences (DiD) model with firm and year fixed effects.

Key Findings

• Productivity Decline: PE ownership leads to a 15% reduction in TFP relative to control firms within five years after acquisition.
• Growth Driven by Inputs, Not Efficiency: Capital investment increases by +21%, labor by +23%, while output rises only +7%. The productivity decline stems from rapid input expansion that outpaces output gains.
• Heterogeneous Effects:
  • Firm characteristics: Large firms and low-profitability firms show smaller productivity declines; high-leverage firms experience the steepest drops.
  • Institutional environment: Countries with stronger governance (e.g., UK, Nordics, Germany) see milder TFP declines than those with weaker institutions.
  • Deal timing: Pre-2008 buyouts exhibit less negative productivity effects than post-2012 transactions, suggesting a shift in PE strategies and macroeconomic conditions.
  • Deal and investor type: Growth-capital deals show larger TFP declines linked to aggressive expansion, while buyouts led by experienced or large PE funds mitigate the negative effects.

Interpretation

Contrary to the common perception that PE ownership boosts operational efficiency through better governance and incentive alignment, this study finds that European PE investors often pursue growth-oriented rather than efficiency-driven strategies.

The authors suggest that many PE transactions in Europe address underinvestment problems, injecting capital and labor to expand capacity rather than optimizing existing operations. While this can initially depress productivity, such growth may lay the foundation for long-term efficiency gains as firms learn by doing.

Implications for Policy and Practice

• For policymakers: PE ownership does not uniformly improve productivity and outcomes may depend heavily on institutional quality and regulatory environments.
• For investors: Productivity impacts are highly heterogeneous — investor experience, deal type, and leverage all shape outcomes.
• For economists: The paper challenges the view of PE as inherently efficiency-enhancing and instead positions it as a complex engine of reallocation and growth.

Conclusion

This research provides an important contribution to understanding private equity’s role in the real economy. By linking firm-level accounting data with thousands of PE transactions, the study uncovers that PE-backed firms grow aggressively but at the expense of short-term productivity.

This evidence reframes the debate on PE’s economic value: rather than destroying efficiency, European PE may be trading short-term productivity losses for long-term growth potential.