The Impact of Private Equity on Employment: The Consequences of Fund Country of Origin—New Evidence from France

• Author: Anne Stevenot,Chris Brewster,Loris Guery,Geoffrey T. Wood
• Published date: 01 October 2017
• DOI: http://doi.org/10.1111/irel.12193
• Date: 01 October 2017

The Impact of Private Equity on Employment:

The Consequences of Fund Country of Origin—

New Evidence from France*

LORIS GUERY, ANNE STEVENOT, GEOFFREY T. WOOD, and

CHRIS BREWSTER

This article explores the country of origin effects of private equity investment on

employment in France. Using propensity score matching methodology applied to

establishment-level survey data, we find that foreign investors are significantly more

likely to induce job shedding and employment insecurity than are French investors.

As suggested by the literature on comparative capitalism, national differences may

persist in conjunction with commonalities and trends in global capitalism.

Introduction

This is a study of the country-of-origin effects of private equity on work and

employment in France. There has been growing controversy as to the role and

consequences of private equity

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(PE) for stakeholders within and beyond the

firm (Clarke 2007, 2013; Wood and Wright 2010). Particular attention has been

focused on the impact on employees, with arguments being advanced within

both the academic and practitioner literature that private-equity takeovers may

leave employees considerably worse off. If a shortcoming of the early literature

on the subject was a limited evidence base (Wood and Wright 2010), a limitation

of more recent work has been a tendency to concentrate on liberal market econo-

mies (LMEs). The latter are generally held as contexts particularly conducive to

the emergence and sustenance of alternative investors, and encouraging more

short-term investor behavior. There has been even less work on the differences

*The authors’affiliations are, respectively, University of Lorraine, Nancy, France. E-mail: loris.guery@

univ-lorraine.fr; University of Lorraine, Nancy, France. E-mail: anne.stevenot@univ-lorraine.fr; University

of Essex, Colchester, UK. E-mail: gtwood@essex.ac.uk; and University of Reading, Reading, UK, Vaasa

University, Vaasa, Finland, Radboud University, Nigmegen, the Netherlands, ISCTE-UIL, Lisbon, Portugal.

E-mail: c.j.brewster@henley.ac.uk.

1

In their Guide on Private Equity and Venture Capital, the EVCA (European Private Equity & Venture

Capital Association 2007: 6) defines venture capital (VC), strictly speaking, as “a subset of private equity

and refers to equity investments made for the launch, early development, or expansion of a business. It has

a particular emphasis on entrepreneurial undertakings rather than on mature businesses.”PE is broader and

also used to define the financing of mature businesses. Our study does not focus on early development (VC)

but on mature businesses (PE).

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in practice disseminated by PE players of different national origin, with the nota-

ble exception of a 2012 study by Bacon et al. (2012). In attempting to redress

this lacuna, this study looks at the implications of private-equity takeovers by

players of different national origins on employees in France, a country where, it

can be argued, institutional mediation remains significantly stronger than that

encountered in LMEs such as the United Kingdom.

While there is controversy over the role of PE, both critics and proponents of

the industry agree that a major consequence of such takeovers is a realignment of

corporate agendas to focus on enhancing owner returns, particularly in the short

term (see Jensen 2006). Investors’associations argue that this focus has a posi-

tive effect on employment (see, for example, Kearney 2007; British Venture

Capital Association 2006; European Private Equity and Venture Capital Associa-

tion 2005; Shapiro and Pham 2008; and the Association francßaise des investis-

seurs pour la croissance [AFIC 2013] for the French case). In contrast, employee

associations and unions argue that it has negative effects on wages and employ-

ment. For example, the Service Employees International Union has argued:

“Typically it’s easier to decrease costs quickly by cutting heads, which is why

buyouts have typically been accompanied by layoffs”(Rasmussen 2008).

Most studies that have investigated the link between PE and employment have

focused on the United States (Davis et al. 2008, 2011; Kaplan 1989; Lichten-

berger and Siegel 1990; Opler 1992) and the UK (Amess and Wright 2007a,

2007b; Amess, GIrma, and Wright 2008; Goergen, O’Sullivan, and Wood 2011;

Wilson et al. 2012; Wright and Coyne 1985), although there is also an emerging

body of work looking at continental Europe (Boselie and Koene 2010; Wieser,

Wright, and Robbie 2007). The results of these studies are by no means consistent.

Simply examining organizational-level employment data may be misleading. For

example, an increase in employee numbers in one organization may be due to it

taking over another, while at the same time jobs are being shed in the acquired

organization, leading to a net loss of jobs (Davis et al. 2011). Again, employment

changes following a takeover may lead to a rebalancing of the ratios between

operators and managerial staff, leaving one or another category worse off. Hence,

it could be argued that there is a need for further research that more closely exami-

nes establishment-level changes (Wright, Gilligan, and Amess 2009).

Existing studies almost never take into account differences in strategies and

objectives between PE firms. Bacon et al. (2013) underline that most of the

criticisms of PE relate to short-term investors focused on increasing organiza-

tional efficiency to extract value, but that other kinds of PE investors exist.

Furthermore, there are few international studies that compare practices of PE

in LMEs and in coordinated market economies (CMEs), and other types of

capitalism (Amable 2003; Hall and Soskice 2001; Whitley 1999) and, with the

notable exception of Bacon et al. (2012), there has been even less work on PE

724 / LORIS GUERY,ANNE STEVENOT,GEOFFREY T. WOOD,AND CHRIS BREWSTER