PE Firms Improve Productivity, Profits: Case Study

“The Operational Consequences of Private Equity Buyouts: Evidence from the Restaurant Industry,” by Shai Bernstein, Stanford Graduate School of Business, and Albert Sheen, Harvard Business School – Finance Unit, a study paper dated October 6, 2013, addresses the question of whether PE firms add operational value to their acquisitions.

Are PE transactions just glorified financial engineering stratagems that focus on ruthless cost cutting and near-sighted financial goals such as ‘strip-and-flip,’ as commonly alleged and believed?

Bernstein and Sheen point out that, contrary to popular opinion, a large body of research work says PE buyouts improve productivity and profitability, and that “PE firms mitigate management agency problems through the disciplinary role of debt, concentrated and...