The Effect of Leveraged Buyouts on Employment Growth and Productivity - Evidence From European LBOs

Abstract: Purpose: The purpose of this thesis is to investigate the post-buyout effect on employment growth in LBOs relative to targets that were not subject to an LBO. Additionally, the study aims to provide an up-to-date insight into the impact of employment productivity post-buyout of the LBOs relative to non-LBOs, as the climate of buyouts have changed since its inception. Methodology: The econometric methodology used is based upon balanced panel data. Pooled OLS regressions and random effects using clustered standard errors was used to deal with heteroskedasticity and partial endogeneity. Propensity score matching was used to deal with possible selection bias when pairing LBOs with non-LBOs. Clustered standard errors by industry were used to capture potential industry effect that might not have been captured by the initial clustered standard errors. Empirical foundation: The thesis uses a final sample of 439 European LBOs that took place between 2013-2016. Additionally, the matching methodology adds 1128 non-LBOs as a control group. Conclusions: The paper discovered that on average, European LBOs experienced a rise in employment levels of around 7% in the pooled OLS mode and 3.4% in the random effects model. Furthermore, the study also found that the average European buyout experienced a decrease in labour productivity of around 3.3% and 3.7% within the same three-year period post-buyout. The results were consistent across two different measurements of labour productivity. The results are maintained after controlling for industry, year and firm controls.