Agency theory has focused on buyouts as a governance and control device to increase profitability, organizational efficiency and limited attention to growth. A strategic entrepreneurship view of buyouts incorporates upside incentives for value creation associated with growth as well as efficiency gains. In this paper, we develop the complementarity between agency theory and strategic entrepreneurship perspectives to examine the performance implications for different types of buyouts. Further, we study how the involvement of private equity firms is related to the performance of the postbuyout firm. These issues are examined for a sample of 238 private equity backed buyouts in the UK between 1993 and 2003. Implications for theory and practice are suggested.4

Using a unique hand-collected dataset, this study determines and quantifies the effects of LBOs (leveraged buyouts) on wages and employment in 1,350 LBOs. Based on an unbalanced panel 5,369 firms observed over the period 1999-2004, we find that all LBOs taken together have an insignificant effect on employment growth but have significantly lower wage growth than non-LBOs. Disaggregating LBOs we find: (1) wage growth is 0.31 of a percentage point lower for MBOs (management buyouts) and 0.97 of a percentage point lower for MBIs (management buy-ins); and (2) employment growth is 0.51 of a percentage point higher for MBOs and 0.81 of a percentage point lower for MBIs. The results indicate that MBOs and MBIs have a differing impact on firms' wage and employment behaviour and should not be treated as homogenous. The results are consistent with: (1) MBIs and MBOs involving the adjustment of wages to a more sustainable basis; (2) MBOs exploiting growth opportunities that lead to greater employment growth; and (3) MBIs not creating new employment opportunities.Private Equity, Management Buyouts, Management Buy-ins, Employment Demand, Wages,

Manuscript Type: ReviewResearch Question/Issue: We assess the corporate governance role and the impact of private equity. Research Findings/Results: Private equity firms are heterogeneous in their characteristics and activities. Nevertheless, a corporate governance structure with private equity involvement provides incentives to reduce agency and free cash flow problems. Additionally, private equity enhances the efficacy of the market for corporate control. Private equity investment is associated with performance gains, with such gains not simply being a result of transfers from other stakeholders. In the short term, the benefits appear clear to outgoing owners and to the new owners and management while in the longer term the benefits are less clear. While non-financial stakeholders argue that other stakeholders suffer in the short and long term, the evidence to support this view is at best mixed. Theoretical Implications: By reviewing a comprehensive selection of theoretical and empirical papers published in refereed academic journals in finance, economics, entrepreneurship, and management as well as publicly available working papers and private equity industry studies, we develop a more complete understanding of private equity investment. Agency theory has shortcomings when applied to the broad sweep of private equity-backed buyout types, as in some cases pre-ownership change agency problems were likely low (e.g., family firms), in some cases the exploitation of growth opportunities owes more to the entrepreneurial behavior of managers than to improved incentives, and in some institutional contexts outside Anglo-Saxon countries traditional agency issues are different and stakeholder interests are more important. There is a need for further theorizing on the heterogeneity of buyout and private equity types and the contexts in which they occur. Particularly useful perspectives seem to be entrepreneurial perspectives (e.g., entrepreneurial cognition, strategic entrepreneurship), stewardship theory, and institutional theory. Stakeholder governance theory (e.g., relating to employee ownership and participation) may also be useful for explaining wider distribution of gains. Practical Implications: Private equity investment is a positive feature of the corporate restructuring landscape. There is a need for managers and their advisors to be aware of the heterogeneity of the opportunities to create value and the expertise of different private equity firms. Policymakers designing mechanisms to regulate private equity need to be aware of the systematic evidence that shows a more positive impact of private equity than some have claimed, but also that there are heterogeneous effects relating to different types of buyouts and private equity firms that need to be taken into account.

The considerable growth in corporate cash holdings around the world has prompted scholarly interest. Consequently, there is now a large academic literature examining cash holdings and their impact on corporate outcomes and firm values. This article reviews and synthesizes the literature to offer insight into two primary motives to hold cash: precautionary and agency. We first present a stylized model that explores the trade-off in holding cash between these two motives and then examine empirical studies to determine how existing theories are supported by evidence using data from a variety of countries. In addition, we examine the effectiveness of a variety of corporate governance devices in curtailing cash holdings and also the extent to which these devices offer investors' confidence that cash will not be wasted. Finally, we discuss methodological and measurement issues associated with empirical cash holdings studies. JEL classification: G30; G32

Private equity and management buyouts have been the subject of considerable controversy. There have been recent calls for more systematic evidence on the impact of private equity and buyouts. Yet there is already an extensive body of scientific evidence stretching back over the past two decades that provides a platform for understanding the current context. This article summarises what we know about private equity from a comprehensive review of approximately 100 studies from around the world under the following headings: the returns to investors; profitability and productivity; the drivers of effects on profitability and productivity; the impact on employment and wages; growth and investment strategies; the extent to which high leverage is associated with failure; the generation of gains from asset disposals (asset stripping); the reselling of assets within short periods of time (asset flipping); and whether the effects persist after private equity firms have exited. This scientific evidence indicates that private equity and buyouts bring particularly important economic and social benefits. What we would like to know about private equity and buyouts is discussed under five broad headings: the difference between the second wave of deals and the first wave; the nature of the fund and its impact on returns; the distinction between secondary and primary buyouts; the failure rate of buyouts; and the tax implications. Implications for policy and practitioners are also discussed.