Does going private add value through operating improvements?

- Empirical measures of LBO performance are sensitive to accounting distortions.
- An empirical measure is proposed that is undistorted by LBO accounting.
- We reexamine the first buyout wave where expect to find economically significant results.
- We find no robust evidence of operating improvements in LBOs, regardless of time period.

Previous studies document a large positive effect of private equity ownership on operating performance between 1980 and 1990 while evidence on the more recent buyout wave is mixed. We revisit the evidence on post-LBO performance and offer an additional explanation for the varied and time-inconsistent results found in the literature: the effect of accounting for LBO transactions and its change over time. Using hand-collected financial statements for 183 U.S. public-to-private LBOs, we illustrate how previously used proxies for operating performance suffer from an accounting distortion induced by the buyout transaction. We reproduce the results of previous studies. However, once proxies are modified slightly to account for the LBO process, we find no robust evidence of post-buyout improvements in public-to-private LBOs, regardless of the time period of the study.