Private Equity and Worker Commitment: Understanding the Key Role of Employee Perceptions of Business Outlook

• In Event: 21067 - Organizational Responses to Regulatory Changes

Abstract

Prior research suggests that companies enacting private equity buyouts will trade worker well-being for operational efficiency. Scholars of work and organizations suggest that this trade-off will reduce worker commitment, impeding operational improvement against new owners' interests. Building off qualitative research on employee experiences of mergers and acquisitions, we argue that the negative impact of private equity buyouts on worker commitment will be stronger when workers perceive the operational change as unjustified. To test this idea, we build a dataset on all private equity buyouts of U.S. public companies, 2016 through 2022, linked to employee job reviews. While private equity buyouts reduce workers' sense of purpose and their assessment of culture and values at work -- two ways that we operationalize worker commitment -- this decline is concentrated in companies where employees in general perceived the company as having a stronger business outlook prior to the buyout. This is surprising because one might expect that cost-cutting pressure will be higher in buyouts where workers were generally more pessimistic about company prospects. Our study provides evidence for this justification mechanism as a condition for sustained worker commitment during organizational change, in contrast to the trade-off framing in prior research: collective perceptions of business outlook moderate the impact of buyouts on worker commitment. The (lack of) legitimacy of buyers’ actions towards employees can (exacerbate distrust when working to) improve operational goals.

Authors

• Victoria Zhang, Massachusetts Institute of Technology

• Dylan Nelson, University of Illinois at Urbana-Champaign