This paper provides an overview of the literature on private equity and leveraged buyouts, focusing on global evidence related to both governance and returns to private equity and leveraged buyouts. We distinguish between financial and real returns to this activity, where the latter refers to productivity and broader performance measures. We also outline a research agenda on this topic.

Scale economies and agglomeration externalities are alleged to be important determinants of economic growth. To assess these effects, we outline and estimate a microfoundations model based on a dynamic cost function specification. This model provides for the separate identification of the impacts of externalities and cyclical utilization on short- and long-run scale economies and input substitution patterns. We find that scale economies are prevalent in U.S. manufacturing, cost savings and scale effects often attributed to internal inputs may be due to external factors, and supply-side agglomeration effects are greater than demand-side, especially in the long run.

We assess the recent economic and financial performance of U.K. private equity (PE) backed buyouts. Our empirical evidence, which is based on thousands of transactions, reveals that PE-backed buyouts achieved superior economic and financial performance in the period before and during the recent global recession, relative to comparable firms that did not experience such transactions. Our regression results imply positive differentials of 5–15% in productivity and approximately 3–5% in profitability for buyout firms, relative to non-buyout firms. Another key finding is that revenue and employment growth for PE- backed firms were positive during the sample period.

We assess the total factor productivity of 35,752 manufacturing establishments before and after management buyouts (MBOs). MBO plants are less productive than comparable plants before the transfer of ownership. They experience a substantial increase in productivity after a buyout, which appears to be due to measures undertaken by new owners to reduce the labor intensity of production, via outsourcing of intermediate goods and materials. These findings, which are pervasive across industries, imply that MBOs reduce agency costs and enhance economic efficiency. Our evidence is consistent with Jovanovic and Rousseau (2002), who suggest that ownership changes shift resources to more efficient uses and to better managers.