Abstract

We examine the effects of majority buyout investments on employment numbers in unlisted firms and businesses taken private in Japan between 1998 and 2015. In our sample (n=184), regular employment grows at an uncorrected average of 12.3% during a mean holding period of 4.3 years, and an annual growth differential of +1.7pp relative to a matched-pairs sample. Evidence from field interviews indicates that the positive growth differential primarily results from funds not cutting jobs beyond a certain threshold for reputational concerns. These concerns moderate the decisions of funds at two stages in the investment process: funds tend to avoid investing in businesses with major restructuring needs, and to prefer growth-centred to cost-cutting strategies. The effect on employment differs neither between foreign and domestic investors, nor between domestic funds owned by management and domestic funds owned by large financial or corporate groups. This implies that the reputational concerns outweigh differences in ownership and origin.

Highlights

  • There has been considerable research on the effects of buyout investments on employment numbers, with most studies finding either significantly negative effects or no significant effects at all

  • In our sample (n=184), regular employment grows at an uncorrected average of 12.3% during a mean holding period of 4.3 years, and an annual growth differential of +1.7pp relative to a matched-pairs sample

  • In Japan, buyout investing through private equity funds started with a corresponding regulatory change in 1998.1 In the very same year, both established foreign and new domestic players started to operate in the Japanese marketstarted their operations (Kubo 2014)

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Summary

Introduction

There has been considerable research on the effects of buyout investments on employment numbers, with most studies finding either significantly negative effects or no significant effects at all. Our study complements the body of research with insights into the employment outcomes of buyout investments in the Japanese economy. By 2010 cumulative PEBO investments in Japan amounted to an estimated USD 57 billion, six times the figure for Australia, and by far the largest market in the Asia-Pacific (Fleming 2018). The advent of this new type of investor caused considerable concern. While anecdotal evidence suggests that buyout funds in Japan have rarely engaged in large-scale cutbacks in the workforce (Yeh 2012), no systematic study exists to date

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