Managing Margins: PE Effects on Financial, Physical, and Human Capital

Private equity (PE) plays an increasingly important role in the modern US economy. However, its impacts on owned-firms are incompletely understood. We exploit a historically large leveraged buyout of a national hospital chain to examine how the full life cycle of PE influences hospital-level revenues, technology sourcing, labor use, and financial performance. We find permanent improvements in hospital volumes and revenues. PE also reduces growth in full-time employees, with a suggestive partial substitution toward part-time workers. Technology adoption is restrained, but the number of vendors expands. Overall, PE has nuanced effects on hospital management, which translate to improved operating margins.