Thirty Years After Jensen’s Prediction – Is Private Equity a Superior Form of Ownership?

Abstract

Almost exactly 30 years ago, a famous article by Michael Jensen in the Harvard Business Review predicted that private equity would “eclipse” the public corporation because it was a superior form of corporate ownership. Trends since 1989 seem to bear out Jensen’s prediction. Much time and energy has gone into studying whether private equity’s model does see companies being run better for investors and society. Progress has been made and most studies find positive results. Yet, samples are usually relatively small; and, PE transactions create many layers of newly formed companies, which makes it hard to find financial statements that are both consolidated and granular enough. After thirty years of research, we argue that we are much further to a conclusive answer than we might think.