The private equity industry has grown rapidly over the past 25 years. With this growth, private equity firms have increased their involvement in politics, which many view as controversial.
In a new study published in the Journal of Finance, a University of Arkansas finance professor and his colleague at Purdue University found that some private equity firms, despite their reputation as job destroyers, increased employment following a buyout. Most of these firms had political connections, and the jobs they created or retained after buyouts were concentrated during election years in swing states or states that the researchers identified as having “high corruption.”
“The general perception of private equity firms is they slash and burn after a buyout,” said Scott Hsu, assistant professor in the Sam M. Walton College of Business. “But we found the opposite for those firms with political connections. These firms, on average, actually created more jobs after buyouts, or at least eliminated fewer jobs, than firms with no political connections. When we dug a little deeper, we discovered that, on average, these firms tended to increase employment in election years, especially in states with greater corruption.”