Private Equity Ownership and Firm Performance: A Framework for Interpreting the Evidence
Working Paper Author/Authors
Key Finding
Private equity creates value when the benefits of active ownership outweigh the costs of illiquidity, leverage, and fees.
Abstract
We review the evidence on the impact of private equity (PE) ownership on firms, stakeholders, and the economy. We organize this literature using a framework that emphasizes the costs and benefits of PE as an ownership form and implies five main predictions: (i) only some firms are natural PE targets; (ii) PE ownership is optimally temporary; (iii) debt is typically a cheaper source of capital than PE equity; (iv) PE activity is strongly cyclical; and (v) the PE model is a second-best response to underlying agency and contracting frictions. We use this framework to interpret existing evidence and to clarify when, and for whom, PE ownership creates value.
Published in
© Per Strömberg, Christian J. Thomann, 2026
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