The Political Consequences of Private Equity: Evidence from U.S. Leveraged Buyouts

• In Event: Buying Influence: Political Economy of Lobbying and Campaign Contributions

Abstract

Over the last 30 years, private equity (PE) funds have not only grown exponentially in size, surpassing $5 trillion in assets by 2020, but also consistently outperformed public markets. We argue that coordinated corporate political activity partially explains the superior performance of PE funds. To demonstrate this, we assemble a unique dataset of over 32,000 leveraged buyouts of US companies from 2000-2020. Using a difference-in-differences design, we show that portfolio companies acquired by PE funds subsequently increased their federal lobbying efforts and political donations. These effects are larger for companies acquired by politically active PE firms as well as those that had stayed out of politics prior to the acquisition. The growing political power of PE firms has profound consequences for political representation and democratic accountability. We show that the political activity of PE firms helps lower companies' effective tax rates, while also protecting the wider PE industry from enhanced regulatory scrutiny. These results provide evidence of how institutional investors achieve outsized political influence and undermine pluralism by prioritizing political giving within their acquisition strategy.

Authors

• Florian Hollenbach, Copenhagen Business School

• David Szakonyi, Higher School of Economics