Private Equity Buyouts in Japan: Effects on Employment Numbers

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.