Marc Goergen

Noel O'sullivan

Geoff Wood

Private Equity Takeovers and Employment in the UK: Some Empirical Evidence

Research Issue: This study investigates the employment consequences of private equity acquisitions, in particular institutional buy-outs (IBOs), in the UK. It involves a pre and postacquisition analysis of employment and performance characteristics for a sample of acquired firms and a matched sample of non-acquired firms.

Research Findings: There is a significant decrease in employment in acquired firms in the year immediately after the completion of the IBO compared with non-acquired firms. Further analysis fails to identify any parallel or subsequent increase in firm productivity or profitability. This evidence suggests that the observed downsizing has not been effective either in disciplining staff or imparting a clearer focus to activities.

Academic Implications:

The results of this study add to our understanding of the employment effects of private equity acquisitions, especially IBOs. Two important theoretical issues emerge.

The first is a need to conceptualize skills and human capabilities on a collective dimension, specific to a particular organizational setting, and the extent to which they contribute to the organization's performance. The second is the importance of understanding managers as operating in particular social settings, making subjective choices based on their specific knowledge and experiences.

Practitioner Implications:

The main practitioner implication of our study is that companies acquired via IBO do not exhibit increased productivity or profitability in the wake of a significant reduction in employment. This highlights the need for new management to better understand the link between employment and performance in the specific corporate setting of the acquired firm.

R e v i e w C o p y

INTRODUCTION

There is an emerging research interest in the relationship between governance, sources of company finance and the consequences for employees, with existing work predominantly focusing on comparisons of the effects of national regulatory regimes (Botero, Djankov, La Porta, Lopez-de-Silanes, [START_REF] Botero | The regulation of labor[END_REF][START_REF] Goergen | Corporate governance regimes and employment relations in Europe[END_REF]. Such issues tend to become especially highlighted in the case of takeovers of public companies by private equity investors. Private equity acquisitions have been on the increase since the late 1990s [START_REF] Renneboog | Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation[END_REF] and the increased takeover activity by private equity houses has been causing public concern about its consequences. While the involvement of private equity in the takeover of public companies traditionally focused on relatively small companies, often facilitating management buy-outs, more recent transactions have highlighted the potential for some of the largest UK companies to be the targets of such acquisitions (e.g. Alliance-Boots). Indeed, [START_REF] Thornton | Inside the dark box: Shedding light on private equity[END_REF] suggests that as many as 20 per cent of all private sector workers in the UK are employed by organisations with some private equity investment. This has raised concerns about the welfare of substantial numbers of employees with employee representatives calling both for greater transparency from private equity acquirers and legislative changes to safeguard employee rights. For example, on 24 February 2007, Brendan Barber, the General Secretary of the Trades Union Congress (TUC), challenged private equity investors to attend a roundtable and "to tell [the public] what they stand for and whether they accept any responsibilities to their workforce or the wider community" (Barber, 2007:1). R e v i e w C o p y 4 acquisition is hostile or friendly, the type of staff (white collar versus production staff), the extent of post-acquisition divestment, and also the period being studied.

Research examining the employment effects of private equity takeovers is only now emerging in the literature, often forming part of a larger study of takeovers and/or MBOs generally [START_REF] Amess | Management buy-outs, supervision and employee discretion[END_REF]Amess &Wright, 2007 and2010;[START_REF] Weir | Public to private transactions, private equity and performance in the UK: An empirical analysis of the impact of going private[END_REF]. However, studying private equity acquisitions, specifically IBOs, as a homogenous group has potential to take forward our understanding of this increasingly important phenomenon in a number of respects. First, private equity-backed IBOs typically involve the complete replacement of existing managers, hence weakening the social and implicit employment agreements with employees. Consequently, incoming managers are likely to take a more objective view of how best to utilise employees in the pursuit of owner wealth, raising questions about both employment levels and wage levels. Second, private equity-backed IBOs are often financed by significant levels of debt and this debt burden is likely to put additional pressure on management to seek economies, especially in reducing the overall wage bill. Third, it is generally anticipated that private equity acquirers will seek to recover their investment and any profits within a reasonably short time-frame so may be more focused in seeking to eliminate unnecessary costs as soon as possible after the takeover, putting employees and associated costs particularly under the spotlight.

The paper is structured as follows: the next section provides a comprehensive review of prior research on the impact of ownership changes on employment and employees, concluding with a discussion of the likely impact of private equity acquisitions on employment. The following section introduces the sample, variables and outlines the research methodology. This R e v i e w C o p y 5 is followed by our empirical analysis. Our conclusions, limitations of our study and a discussion of the academic and practitioner implications of our findings are presented in the final section.

OWNERSHIP CHANGES AND THE CONSEQUENCES FOR EMPLOYEES

Changes in company ownership have been an important area of academic inquiry in the economic and finance literature over the past fifty years. The vast majority of work in the area has focused on the economic impact of takeovers of public companies, initially in relation to changes in market share and the effect of mergers on competitiveness and more recently examining issues surrounding wealth changes, specifically in respect of shareholders in the bidder and target firms. Central to much of this research has been the assumption that takeovers are an important mechanism for achieving the most efficient use of corporate assets [START_REF] Manne | Mergers and the market for corporate control[END_REF][START_REF] Jensen | Agency costs of free cash flow, corporate finance and takeovers[END_REF]. This view is further strengthened by the significant premiums acquiring companies pay in order to obtain control of another firm's assets [START_REF] Andrade | New evidence and perspectives on mergers[END_REF]. In an environment of companies being acquired for prices significantly in excess of their market value, a key question concerns the sources of the expected wealth gains.

In a seminal article, [START_REF] Shleifer | Breach of trust in hostile takeovers[END_REF] argued that one potential source of wealth extraction may come from the target firm's employees since a change in ownership permits new management to renegotiate the implicit contracts of employment of existing workers. How this may occur in practice, in addition to the laying off of staff, has been discussed by a number of researchers. For example, employees may work for lower wages early in their career and remain committed to the organization in the expectation of higher wages as they advance up the salary scale. However, given that older workers are likely to be more R e v i e w C o p y 6 expensive, firms have an incentive to renege on this implicit arrangement, a process that may be facilitated by a takeover (Beckmann & Forbes 2004).

Researchers have also suggested that the nature of the takeover may influence subsequent employment. For example, [START_REF] Conyon | The impact of mergers and acquisitions on company employment in the United Kingdom[END_REF] argue that the risk of a renegotiation of employment contracts is more likely in the case of hostile acquisitions for two reasons. First, the fact that the incoming management team acquired the firm against the wishes of the company is a clear signal that the new management team would pose a very credible threat in any confrontation with employees. Second, the fact that the management team is new means it is unlikely to have developed any significant ties with existing employees in the same way that the incumbent management team would. [START_REF] Denis | Evidence on the effects of hostile and friendly tender offers on employment[END_REF] suggests that employees are more likely to come under pressure after a horizontal takeover, where two companies in the same industry come together, because a significant level of duplication is expected to exist after the takeover. Furthermore, Beckmann & Forbes (2004) suggest that the likelihood of a breach of trust after acquisitions is likely to be positively related to the extent of the bid premium the acquirer has had to pay. The remainder of this section reviews the existing research evidence on the impact of ownership changes on employees. The review begins by looking at the impact of mergers and acquisitions generally and then progresses to focus on the employment impact of MBOs and private equity acquisitions in particular.

Mergers and Acquisitions

A relatively small number of studies have sought to investigate the impact of mergers and acquisitions on employees. Essentially, these studies focus on the impact of takeovers on employment or the impact on wages, or both. In one of the earliest studies in the US, Denis 1975[START_REF] Nickell | An investigation of the determinants of manufacturing employment in the United Kingdom[END_REF][START_REF] Denis | Evidence on the effects of hostile and friendly tender offers on employment[END_REF] finds that the number of employees declined significantly after hostile acquisitions in the 1980-84 period but finds no evidence of post-acquisition declines following takeovers prior to 1980 and for friendly acquisitions between 1980-84. Furthermore, she finds that the reported declines occur in plants originally owned by the acquirer and not the target and suggests these declines are related to broader restructuring by acquirers and not an attempt to breach existing labour contracts. These findings are reinforced by [START_REF] Mcguckin | The impact of ownership changes: A view from labor markets[END_REF] who report that postacquisition job losses are more likely to occur in larger factories owned by the acquiring firm rather than significantly impacting on the employees of the target. These two studies seem to provide some support for job reductions after takeovers but find no evidence that employees in the acquired company are especially targeted. [START_REF] Beckman | An examination of takeovers, job loss and wage decline within UK Industry[END_REF] argue that, if there is a breach of trust subsequent to takeover, then employees may have to pay through lay-offs and wage cuts for excessive bid premiums paid by acquirers. Based on a UK sample, the authors fail to find evidence to support this hypothesis, concluding that rather than a gain by shareholders at the expense of employees, both the new shareholders and employees may be locked in a form of "equal misery" (ibid: 163) following the takeover due to the much documented evidence of acquisitions performing badly. Further, [START_REF] Goergen | The boundaries of governance: The effects of national setting and ownership changes on employees[END_REF] found that it was more likely that those firms which have implicit contracts in place renege on these contracts ex post by adopting practices with more damaging effects for their workforce, most notably leaner staffing and hence redundancies. Finally, based on a 20year study of the Californian savings and loans industry, [START_REF] Haveman | The ecological dynamics of careers[END_REF] found that, in general, mergers tend to destroy jobs and directly increase both exits from the organization and from the industry at large. between 1967and 1996. In a study of the period 1983to 1996[START_REF] Conyon | Do hostile mergers destroy Jobs?[END_REF] find that demand for labour decreased for all acquirers in the region of 7.5 per cent, but they fail to identify any differences depending on whether the takeover was hostile or friendly. Over the longer term, between 1967term, between and 1996term, between , Conyon et al., (2002) ) report significantly larger decreases in the demand for labour arising from hostile and related bids. Based on French data, [START_REF] Margolis | Should employment authorities worry about mergers and acquisitions?[END_REF] found that, in the case of mergers, employees of the acquired firm were more likely to leave/lose their jobs in the period immediately following the acquisition. Over time, however, these differences disappeared, suggesting that the effects of a takeover are more short-term, even if the effects are carried over to the medium and long terms. Based on a case study of a single organization, [START_REF] Björkman | The HR function in large-scale mergers and acquisitions: the case study of Nordea[END_REF] argue that mergers can have the effect of diverting managerial attention towards financial outcomes at the expense of the strategic development of the rest of the organization. Indeed, reviews by [START_REF] Andrade | New evidence and perspectives on mergers[END_REF] and [START_REF] Tuch | The impact of acquisitions on firm performance: A review of the evidence[END_REF] note that mergers do not appear to result in overall organization-wide productivity gains. [START_REF] Rosett | Do union wealth concessions explain takeover premiums? The evidence on contract wages[END_REF] sought to investigate whether the premiums paid to target shareholders during takeover contests were subsequently reclaimed from employees through less favourable wage settlements. Analysing a large sample of such settlements over the pre-and post-takeover period [START_REF] Rosett | Do union wealth concessions explain takeover premiums? The evidence on contract wages[END_REF] finds little evidence to support this hypothesis. In the UK, [START_REF] Conyon | Do wages rise or fall following merger[END_REF] also investigate the impact of mergers on wage levels and find no evidence that mergers had a negative impact on wage levels. Indeed, [START_REF] Conyon | Do wages rise or fall following merger[END_REF] report that both wages and profitability increased after mergers with related acquisitions being associated with higher wages. Focusing on hostile takeovers, [START_REF] Gokhale | Do hostile takeovers reduce extramarginal wage payments?[END_REF] investigate whether takeover targets experience extra-marginal wages prior to being acquired and then go on R e v i e w C o p y 9 to see whether takeovers result in any subsequent changes. [START_REF] Gokhale | Do hostile takeovers reduce extramarginal wage payments?[END_REF] find no evidence of extra-marginal wages being paid to employees prior to the acquisition. However, their study does report a reduction in the relative employment of more tenured (and likely more expensive) workers after the acquisition.

Management Buy-Outs/Private Equity

It was suggested earlier that the nature of takeovers may influence the subsequent experience of employees. This expectation has prompted researchers to investigate the employment consequences of companies, or parts of companies, that are subject to a management buy-out (MBO) or other private equity related acquisitions. Table 1 summarises these studies including details of the studies as well as summarising the main findings. Two of the earlier MBO studies were undertaken in the US and broadly followed the approach discussed earlier for general mergers and acquisitions research, i.e. comparing employment levels before and after the MBO transaction using public data. [START_REF] Kaplan | The effects of management buyouts on operating performance and value[END_REF] study sought to investigate whether MBOs led to a reduction in employment. He found no evidence of employment reductions, indeed there was evidence that firms increased employment after MBOs. [START_REF] Lichtenberg | The effects of leveraged buy-outs on productivity and related aspects of firm behaviour[END_REF] focused on testing [START_REF] Jensen | Active investors, LBOs, and the privatisation of bankruptcy -statement before the House Ways and Means Committee[END_REF] argument that one way MBOs achieve efficiency is by replacing direct monitoring by large bureaucracies with a more incentive orientated approach. First, [START_REF] Lichtenberg | The effects of leveraged buy-outs on productivity and related aspects of firm behaviour[END_REF] found a very significant decline in the level of employment of non-productive staff (approximately 8.5 per cent) thereby adjusting the production/non-production ratio in favour of productive staff. Second, they found an increase of approximately 3.6 per cent in annual compensation of production workers compared to a slight decline in the compensation of non-production staff. More recent studies have approached the investigation of the employment consequences of MBOs/private equity acquisitions from two perspectives. On the one hand, studies such as [START_REF] Amess | The wage and employment effects of leveraged buy-outs in the UK[END_REF]; Amess et al. (2007); [START_REF] Davis | Private equity and employment[END_REF] and [START_REF] Weir | Public to private transactions, private equity and performance in the UK: An empirical analysis of the impact of going private[END_REF] employ secondary data to ascertain whether changes in employment, wages and productivity can be identified either by comparing firm characteristics before and after the acquisition and/or benchmarking against a non-acquired control group. On the other hand, studies such as [START_REF] Bacon | Management buy-outs and human resource management[END_REF][START_REF] Bacon | The effects of private equity and buy-outs on HRM in the UK and the Netherlands[END_REF], [START_REF] Bacon | Assessing the impact of private equity on industrial relations in Europe[END_REF] and [START_REF] Bruining | The impact of business ownership change on employee relations: buy-outs in the UK and The Netherlands[END_REF] employ questionnaire surveys to obtain insights on any alternations to HR practices after the acquisition.

As shown in Table 1, there has been significant recent interest in seeking to understand the employment consequences of MBOs/private equity acquisitions. Quantitative studies seeking to ascertain employment consequences have produced mixed results but, on the whole, show little consistent evidence that MBOs/private equity acquisitions have a negative impact on employment. For example, in the UK, [START_REF] Amess | The wage and employment effects of leveraged buy-outs in the UK[END_REF] find no discernable differences in employment growth rates between LBO firms and non-LBO firms, even though there is some evidence of lower wage growth in the LBO sample. Taking a slightly different perspective, Amess et al. (2007) find that employees in firms subject to MBOs enjoy a greater degree of discretion over their work practices than non-MBO firms. It should be noted that a recent US study by [START_REF] Davis | Private equity and employment[END_REF] 11 significantly lower employment growth rates than non-MBO firms in the three years after the acquisition. However, in years four and five after the acquisition, Davis et al.'s (2008) study documents a reversal with MBO firms showing significantly higher employment growth rates than their non-MBO counterparts.

A useful recent development in this area of analysis has been an attempt by researchers to disaggregate MBO acquisitions in terms of sources of finance, specifically seeking to focus on whether private equity-backed deals exhibit different post-acquisition employment characteristics compared to non-private equity transactions. [START_REF] Amess | The wage and employment effects of leveraged buy-outs in the UK[END_REF] segregate their sample between MBOs and MBIs and find that the post-acquisition employment growth rates in MBIs is significantly lower than for other MBOs. Interestingly, in a subsequent study, [START_REF] Amess | Leveraged buyouts, private equity and jobs[END_REF] segregate their sample of LBO acquisitions between those with private equity involvement and those without and report no significant differences in employment either between private equity-backed LBOs and other LBOs or between private equity-backed LBOs and a control sample of non-LBOs. Finally, [START_REF] Weir | Public to private transactions, private equity and performance in the UK: An empirical analysis of the impact of going private[END_REF] focus on firms acquired in publicto-private acquisitions and report that job losses in their sample firms are at a lower rate than firms in the same industries that remain public.

Using questionnaire surveys of firms having gone through MBOs in the UK, [START_REF] Bacon | Management buy-outs and human resource management[END_REF] find that a significant number of respondents report an increase in the importance of HRM and the resources devoted to it subsequent to MBO. Examples include: increased employment, greater employee involvement, increased training, greater flexibility and increases in share ownership by staff. In subsequent surveys, both in the UK and across Europe, [START_REF] Bruining | The impact of business ownership change on employee relations: buy-outs in the UK and The Netherlands[END_REF] and [START_REF] Bacon | The effects of private equity and buy-outs on HRM in the UK and the Netherlands[END_REF] reinforce this positive impression of HRM practices after MBOs, specifically reporting an increase in the number of high commitment practices. 2010) look specifically at HR issues after private equity-backed MBOs and find no evidence that the new ownership results in changes to union recognition, union membership density or management attitudes to union membership. Furthermore, [START_REF] Bacon | Assessing the impact of private equity on industrial relations in Europe[END_REF] find a greater level of employee consultation by management after private equity acquisitions.

Private Equity Acquisitions

Under the broad term of private equity are two fundamentally different types of investor behaviour [START_REF] Wood | Private equity and human resource management: An emerging agenda[END_REF]. The first, venture capital, involves early stage investors who provide capital in return for input in setting organizational direction. There is a general consensus that the effects of this are generally positive [START_REF] Wood | Private equity and human resource management: An emerging agenda[END_REF]. In contrast, what is sometimes referred to as private equity per se, is when an investor purchases, or facilitates in the purchase of a firm, on the premise that either new management, or at least a change in managerial style, may enhance returns. In effect, this involves the acquisition of publicly quoted companies and taking them private via so called public to private transactions (PTPs) 1 or the takeover of non-listed companies by private equity firms.

Following on from a first wave in the 1980s, a second wave from the mid-1990s onwards has attracted much debate and controversy (see [START_REF] Wood | Private equity: A review and synthesis[END_REF]. [START_REF] Renneboog | Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation[END_REF] usefully classify such PTP transactions into three sub-groups: (i) management buy-outs (MBOs)

where the incumbent management seeks institutional support from private equity firms to purchase a major stake in the firm and to fund the transaction which aims at taking the firm private; (ii) management buy-ins (MBIs) arise where a team of outside managers or entrepreneurs purchase all or most of the equity; (iii) institutional buy-outs (IBOs) represent deals where the bidding group consists solely of institutional investors and private equity houses and any equity stake held by management arises from their remuneration package. From an employee perspective, the consequences of MBOs might be expected to be more positive (or less negative) since the existing management team remains suggesting that the existing managementemployee relationship might remain unaltered. 2 Managers are likely to be bound to their workforce through implicit contracts, and are likely to have sunk emotional capital in the firm.

MBIs and IBOs on the other hand typically introduce an external management team who are less likely to be loyal to the existing workforce, especially if employees had opposed the takeover transaction, and might be expected to seek renegotiation of existing employment contracts as hypothesised by [START_REF] Shleifer | Breach of trust in hostile takeovers[END_REF].

In the finance literature, IBOs have long been viewed as a useful mechanism in seeking to reduce the agency problem between widely dispersed shareholders and managers. Specifically, as argued by [START_REF] Jensen | Morgan Stanley roundtable on private equity and its import for public companies[END_REF] and Wright, Renneboog, Simons, & Scholes (2006), private equity ownership restores the separation between ownership and control by putting in place active investors who provide more direct scrutiny of managerial behaviour and consequently are expected to deliver greater shareholder-orientated performance. It can be argued that improvements in technology and management techniques mean that firms are capable of operating on far leaner staffing levels than before (Wruck, 2008;[START_REF] Jensen | Value maximization, stakeholder theory, and the corporate objective function[END_REF]. Quite simply, as the firm becomes leaner, there is less room for sub-optimal staff to hide. Moreover, measures to reduce the labour intensity of productive processes may result in overall productivity and efficiency gains [START_REF] Harris | Assessing the impact of management buyouts on economic efficiency: Plant-level evidence from the United Kingdom[END_REF]. Organizations that lag behind in this process are likely to be rendered uncompetitive (Wruck, 2008;[START_REF] Jensen | Value maximization, stakeholder theory, and the corporate objective function[END_REF]. Wruck (2008) argues that IBOs can play an important role in pioneering best practice since they provide evidence of the benefits of dispassionate investor behaviour. When owners, and managers as their agents, have The large premiums associated with such takeovers, typically in excess of 40 per cent, appear consistent with bidders' expectations of significantly improved post-acquisition performance [START_REF] Renneboog | Why do public firms go private in the UK? The impact of private equity investors, incentive realignment and undervaluation[END_REF]. However, the precise way in which such improved performance is achieved remains unclear. Renneboog et al. (2007:1) argued that "there has been no systematic research on the sources of shareholder wealth gains in UK going private transactions". More recent work has partially redressed this gap [START_REF] Weir | Public to private transactions, private equity and performance in the UK: An empirical analysis of the impact of going private[END_REF][START_REF] Guo | Do buyouts (still) create value?[END_REF], but evidence on the consequences for employees and other stakeholders remains mixed, suggesting a diversity of outcomes [START_REF] Wood | Private equity: A review and synthesis[END_REF].

In view of the above, it is possible for us to identify a number of related issues regarding the impact of private equity acquisitions on employment. First, the general literature on mergers and acquisitions, in particular when taking the agency theory perspective, suggests that employees are likely to be adversely affected by a private equity funded takeover. This is expected to arise for a number of reasons. First, such takeovers are likely to facilitate the reigning in of managers, and their closer subordination to the agenda of generating value for owners. Second, changes in ownership are likely to open opportunities for challenging existing ways of doing things and allow for the recasting of relations within the firm which is expected to lead to downsizing and the liquidation of assets. More pragmatically, it could be argued that, as private equity takeovers often target underperforming or failing organizations, job losses will often be inevitable. Moreover, in a general climate of downsizing, a private equity takeover may only hasten the inevitable, leading to organizational restructuring on more favourable terms than (Wruck, 2008). Indeed, when placed on a firmer footing, the organization may have room to prosper and expand its activities, allowing for re-hiring.

Alternatively, more associational approaches would suggest that specific forms of private equity facilitated takeovers may in fact allow managers greater autonomy to harness their insider knowledge as to the skills and capacities of workers, allowing for more focused human resource development and flatter organizations associated with greater worker autonomy. This reflects recent theoretical work that focuses on the relative autonomy possessed by actors to make key strategic choices, particularly at key instances where there are specific opportunities for innovation [START_REF] Sorge | The global and the local[END_REF]. In other words, whilst actors operate under constraints in terms of governance and implicit rules, at specific moments, there are opportunities to innovate, forming the basis for new ways of doing things. Having some understanding of the value of existing human capital, they will be more reluctant to liquidate it. Aoki (2010: 30) argues that, over time, organizations gradually accumulate "cognitive assets". This is more than simply the lump sum of individual human capital as it refers to the skills and capabilities of employees in the context of a particular "mode of associational cognition" (ibid.: 30). The latter refers to how human assets are related to each other and the context in which they operate (ibid.: 31). In other words, [START_REF] Aoki | Corporations in evolving diversity[END_REF] argues that individuals do not only possess externally marketable (and, hence, costable) skills, but also specific knowledge and capabilities relevant to the firm they operate in. This knowledge and these capabilities allow for firm specific complementarities when used in conjunction with peers' own knowledge sets. This is very difficult for outsiders to cost accurately but explains why existing managers are likely to have closer ties and implicit agreements with workers, which they may be reluctant to renege on. In other words, managers do not hang on to surplus staff in the interests of personally human capabilities as a whole. In contrast, in the case of MBIs, the ejection of the existing management team means that such ties are weakened and, as a consequence, it will be harder for a new management team to accurately cost human and collective cognitive capital. As a result, it is likely that efficiency gains will be sought through sweating rather than nurturing human assets.

As noted earlier, private equity-backed IBOs typically involve changing the management team and reducing the social and implicit employment agreements with employees. This leads to two alternative propositions. The first is that IBOs are likely to result in greater job shedding, given that this provides an effective means of solving the agency problem, and reversing accumulated managerial empire building. Such job shedding will also facilitate significant productivity enhancements. The second is that whilst IBOs are likely to result in greater job shedding, owing to the weaker ties that will exist between a new managerial team and rank-and-file workers, this will not result in productivity enhancements. Rather, as new managers will not be able to accurately cost the cognitive capabilities of the firm's employees, this will result in accumulated assets being sacrificed for short-term gain.

SAMPLE, VARIABLES AND METHODOLOGY

Our sample of private equity acquisitions covers the period 2000 to 2006 in the UK. We first downloaded the list of IBOs from the Deals module in Thomson One Banker. In a second stage, we verified whether all acquisitions were indeed IBOs. As a result some acquisitions were excluded from the initial list. In a third stage, we included acquisitions that had been left out from the initial list. These were acquisitions that Thomson One Banker considered to have been made by strategic investors rather than institutional investors.

INSERT TABLE 2 ABOUT HERE

Since our objective was to investigate issues surrounding employment and employees before and after the takeover we sought to collect data for each firm for three years prior to the takeover and three years after the completion of the acquisition, providing us with a seven year window surrounding the acquisition. Table 3 provides a breakdown of the 73 takeovers we include in our analysis in terms of year of acquisition. In what follows, we define year 0 as the year when the acquisition was completed and all other years are expressed relative to year 0. For example year -1 denotes the year preceding the year of the acquisition.

In order to assess the effects on performance and the number of employees of the private equity acquisition, we attempted to match each of our sample firms with a non-acquired firm with the same three-digit SIC code and the closest turnover (our measure for firm size) in year 0 (or year -1 if the year 0 turnover figure was not available for the sample firm) 3 . Finally, each control firm had to survive until year 2 at least. We were able to match 66 of our sample firms following the above criteria. Another two sample firms could be matched with a control firm that survived only until year 1. Table 3 shows the breakdown of control firms across time.

INSERT TABLE 3 ABOUT HERE

In order to adequately address our research objectives we set out to obtain data on our sample of acquisitions both before and after the completion of the acquisition. Since we are focusing on public companies acquired by private equity houses, i.e. institutional buy-outs (IBOs), obtaining data on the firms for the three years prior to acquisition was not a problem as the annual reports and accounts of listed companies are easily obtained. However, of the 73 firms in our sample, six were acquired within three years of their initial listing and one was acquired within two years of its initial listing, leaving us with available data covering all three years prior to the takeover for 67 firms, two years data for 72 firms and one year data for 72 firms.

Since we are focusing on private equity takeovers, once the firm is acquired it is typically de-listed from the stock exchange and becomes a private company. This significantly complicates the collection of data as it is not easy to trace and/or identify the private firm. In order to overcome this we undertook exhaustive checks of both the Companies House database as well as the FAME database in order to locate the acquired firm. This resulted in us being able to locate usable post-acquisition data for 48 firms for the year after the year of acquisition and 50 firms and 42 firms for years 2 and 3, respectively. The main source of data was each company's annual report and accounts. For a number of companies it simply proved impossible to trace the company post-acquisition; for others we actually found the post-acquisition records but they did not contain data on our key variables. Finally, for a small number of firms, even though the financial records were located, the size and operation was so different from the pre-acquisition firm we decided any comparisons would be meaningless so these were excluded. 19 contains a summary of the number of firms we were able to source useful data on for the preand post-acquisition periods. The table also shows the equivalent statistics for the control firms.

INSERT TABLE 4 ABOUT HERE

In what follows, we perform a quantitative analysis to identify the effects of IBOs on firm performance, employment and productivity. While the size of our sample prevents us from estimating a labour demand function as in e.g. [START_REF] Conyon | Do hostile mergers destroy Jobs?[END_REF][START_REF] Conyon | The impact of mergers and acquisitions on company employment in the United Kingdom[END_REF], we nevertheless include in our univariate analysis all the variables that would be included in such a function. In detail, [START_REF] Conyon | Do hostile mergers destroy Jobs?[END_REF][START_REF] Conyon | The impact of mergers and acquisitions on company employment in the United Kingdom[END_REF] base themselves on [START_REF] Nickell | An investigation of the determinants of manufacturing employment in the United Kingdom[END_REF] and assume that firms have quadratic cost functions, a Cobb-Douglas technology and are output constrained. Under these assumptions, employment can then be described by the following adjustment equation:

it t i t i it t i it t i it w w Q Q L L ε η γ δ δ β β α + + + + + + + = - - - 1 , 2 1 1 , 2 1 1 ,
where L it , Q it and w it are the logarithm of employment, the logarithm of real output and the logarithm of real wages relative to the user cost of capital, respectively; γ i , η t , and ε it are the firmspecific effects, the time-specific effects and an error term. In what follows, we measure employment by the annual growth rate in the number of employees (Table 5), output by turnover (Table 8) and wages by the total of wages and salaries (Table 9). We also include two measures of profitability, i.e. profit over turnover (Table 6) and profit over employees (Table 7). Panel A suggests that, when the median growth rate in the number of employees is considered, the control companies experience a slow, but steady increase in employment until year 3 when employment decreases by more than one percentage point. However, the median growth rate in employment is much more volatile for the sample companies. The median company experiences an increase in the number of employees of roughly 3 per cent in year -2, no change in year -1 and a decrease of -3 per cent in year 1. After year 1, the growth rate is back to the levels experienced in the control firms. In contrast, mean growth rates are much more volatile for both the sample companies and the control companies. Nevertheless, the means still suggest that there is a reduction in employment in the sample firms in the year following the private equity acquisition, but no such reduction in the control companies. Surprisingly, the control firms experience a drop in employment in year 3. Panel B of Table 5 suggests that there is a significant decrease in employment in the sample companies from the year preceding the acquisition to the year following the acquisition.

The difference in growth is significant at the 10 per cent confidence level, but only if the median is considered. There is no such significant decrease for the mean growth rate. Finally, there is some evidence that the growth in employment slows downs significantly over the years following the acquisition for the control firms. Indeed, the mean difference in the growth rates between year 1 and year 2 and the median growth rates between year 2 and year 3 are significant at the 10 per cent level and the 5 per cent level, respectively. To summarise the results so far, there is some evidence of a significant decrease in employment in the sample companies around the time of their acquisition. However, employment numbers also seem to evolve in cycles as evidenced by the significant decrease in employment in the control firms in year 3.

More importantly, Panel C shows that there is a significant difference in the growth rate in employment in year 1 between the sample companies and the control companies. This is the case for both the t-test for the difference in means and the Wilcoxon sign-rank test for the difference in medians: both test statistics are significant at the 5 per cent level. Further, while Panel B suggested that there are cycles in the employment in both the sample companies and the control companies, these cycles are not reflected in the form of significant differences between the two types of companies in Panel C. In other words, whereas Panel B showed some evidence of a significant drop in employment in the control companies in year 3, Panel C suggests that there is no significant difference in the employment growth rate between the sample companies and the control companies in year 3. Hence, the results in Table 5 indicate that private equity investors reduce employment in their target firms after the acquisition.

INSERT TABLE 5 ABOUT HERE

The question that now arises is whether the observed reduction in the number of employees is reflected in an increase in profitability and productivity. Table 6 reports descriptive statistics for the ratio of profit to turnover, our first measure of profitability. When the average profit over turnover ratio is considered, both the sample companies and the control companies seem to experience clear cycles in their profitability. However, the cycles seem out of sync. In other words, profitability is down for the sample firms during the years preceding their acquisition while it is down for the control firms during the years following the acquisition. This is in line with what was observed in Table 5 for the percentage change in the number of employees. However, when the focus is on the median profit over turnover ratio rather than the mean ratio both the sample companies and the control companies experience fairly stable profit rates. Panel B suggests that the control firms experience a significant decrease in profitability at the 10 per cent level between year 1 and 2 based on the mean ratio. However, there is no such significant difference for the median ratio. Panel C shows that the economic differences in profitability between the sample companies and the control companies observed in Panel A are not statistically significant. Hence, while Table 5 revealed a significant decrease in employment in the private equity targets after the acquisition this decrease is not reflected in an increase in profitability. 7 is based on the alternative measure of profitability, i.e. profit per employee. Similar to Table 6, the median rates of profitability are fairly comparable across the sample companies and the control companies. However, there are differences in the mean rates of profitability. While the mean profitability of the sample companies is fairly constant over time with a small dip around the time of the acquisition, control firms experience much higher volatility in profitability with higher profitability during years -3 to 1 followed by a severe drop in profitability in year 2 and a small loss per employee in year 3. However, Panels B and C do not suggest that there are any significant differences across time or between the sample companies and the control companies. Hence, neither Table 6 nor Table 7 suggests that targets of private equity acquisitions perform significantly worse when compared to non-acquired firms in the same industry and of a similar size as measured by turnover. Again, the sample companies seem to be at a different stage in their profitability cycle than the control companies. 8 reports descriptive statistics for our output or productivity measure, i.e. turnover over employees. Similar to the previous tables on profitability rates, the medians are fairly comparable between the sample and control companies. Also in line with the previous tables, there are clear economic differences in the means between the sample firms and the control firms. However, there are no statistically significant differences across time or between the two types of companies.

INSERT TABLE 7 ABOUT HERE

INSERT TABLE 8 ABOUT HERE

Looking at the evidence presented in tables 5 to 8 above in the context of our original propositions we find support for the second proposition and not for the first. In other words, while we document a significant reduction in employment in target firms after IBOs, this is not followed by improvements either in the profit or productivity of these firms.

Table 9 contains descriptive statistics for the wages per employee. When the wages of the median employee are considered, there are virtually no differences between the sample companies and the control companies. However, the wage of the average employee experiences an increase over years -1 to 3 for the control companies but not for the sample companies. Still, Panels B and C do not provide any evidence of significant differences across time or between the sample companies and the control companies. Hence, there does not seem to be any evidence that employees of IBOs lose out via a reduction in their wages. [START_REF] Smart | Measuring the effect of restructuring on corporate performance: The case of management buyouts[END_REF], we perform a robustness check to test whether there is indeed no difference in performance between the sample companies and the control companies. The test consists of calculating the difference in the unexpected performance changes between the sample companies and the control companies. So far, we have performed two types of test. First, we compared the performance across time for the sample companies (as well as the control companies). This is a fairly rudimentary test as it does not properly adjust for cycles in profitability. In other words, if private equity targets are taken over when their performance is below the historical average then one would expect an improvement in performance after the acquisition independent of whether private equity investors create value or not. Second, we compared the sample companies to the control companies for each of the three years preceding the acquisition as well as each of the three years following the acquisition. This second test is an improvement on the first test which assumed that any increase in profitability is uniquely due to the acquisition. Conversely, the second test adjusts for the possibility that both the acquired firm and the control firm (i.e. the whole industry) may experience a profitability shock. However, this second test assumes that any industry-wide shock in performance will be the same across the acquired and non-acquired firms. Hence, [START_REF] Smart | Measuring the effect of restructuring on corporate performance: The case of management buyouts[END_REF] suggest using a more general model to compare the performance of acquired and non-acquired firms consisting of what they call the difference in surprises. The difference in surprises consists of taking the difference between the actual performance for a given year after the acquisition and the performance forecast for the same year made before the acquisition of the sample firm minus the equivalent difference for the control firm. In other words, the difference in surprises consists of the difference in unexpected changes in performance between the acquired firm and the nonacquired firm. In line with [START_REF] Smart | Measuring the effect of restructuring on corporate performance: The case of management buyouts[END_REF], we measure performance by the ratio of 26 profit over turnover. However, the main issue with this test is that the data requirements are substantial. Indeed, it requires that analyst forecasts dating back to the year before the acquisition exist for both the acquired firm and the control firm. This is not always the case for various reasons. In particular, the sample firm (as well as the size-matched control firm) may be too small to attract an analyst following. Further, while some firms may have an analyst following, a performance forecast is not always made for every financial year. Finally, for some firms there is a forecast for the profit, but not for turnover.

INSERT TABLE 9 ABOUT HERE

Forecasts were obtained from Datastream (IBES) for the year preceding the acquisition.

The forecasts are the mean analyst forecasts for profit and for turnover. The forecasts refer to years 1, 2 and 3 after the acquisition. Table 10 contains the results of this robustness check. We were able to compute the difference in surprises for 14 of our sample firms and the equivalent control firms for year 1, nine firms for year 2 and only one firm for year 3. Panel A of the table shows that while there is a small difference in the mean surprise for years 1 and 2, there is no such difference when the median surprise is considered. The t-test as well as the non-parametric Wilcoxon test in Panel B suggests that the difference in surprises is not statistically significant at any of the usual levels of confidence. Hence, while this additional test suffers from a small number of observations it nevertheless confirms our previous results that there is no difference in performance between the sample firms and the control firms.

INSERT TABLE 10 ABOUT HERE

CONCLUSIONS

The documented increase in the takeover of public companies by private equity firms in recent years has raised important questions about the consequences of such acquisitions for employees of the acquired firms. In light of these concerns this study has undertaken an investigation of the impact of private equity takeovers on employees in a sample of acquired firms as well as a size and industry-matched sample of non-acquired firms. A key innovation of our study is the focus on a particular category of private equity acquisition, institutional buy-outs (IBOs). There is much public and trade union concern about the potential for these transactions to have negative employment consequences.

The main finding from our empirical analysis is that employment in acquired firms reduces significantly in the year immediately after the completion of the IBO transaction compared to non-acquired firms. However, further analysis fails to identify any parallel or subsequent increase in productivity or profitability. In other words, downsizing does not appear to be effective either in disciplining staff or in imparting a clearer focus to activities. There are two possible reasons for this. The first is simply that job losses may have knock on effects on the morale of remaining staff [START_REF] Redman | Contemporary human resource management[END_REF]. The second is that a new management team imposed through an IBO will lack detailed insider knowledge as to the firm's "cognitive assets" (Aoki, 2010: 30-31). Rather than reversing perversely motivated empire building, restructuring may result in a loss of such accumulated capabilities; hence, any gains through the discipline and more effective divisions of labour will be offset.

Even though we believe our analysis represents a very significant contribution to the ongoing debate about private equity and employment, we are also aware of some limitations in our analysis. First, while we sought to include all IBOs taking place in the UK between 2000 and we are also aware that following acquired firms for periods longer than three years after the acquisition is capable of improving further our understanding of the employment consequences of such acquisitions. Therefore, future research could usefully investigate the employment consequences of IBOs over a longer period of time, especially periods sufficiently long to enable a better understanding of the role of such acquisitions in the overall life-cycle of the target firms.

Third, it is worth noting that some acquired firms who go through a significant reorganisation subsequent to the acquisition will not have been included in our analysis since we relied on the availability of financial statements subsequent to acquisition for much of our data. In other words, this sample selection or attrition bias may actually hide the true extent of employment reduction subsequent to IBO. Fourth, since this is an initial assessment of the consequences of IBOs on employment, we thought it best to use both industry and size to select our matched sample of non-target firms. Future research could also examine the potential for matching a control sample of firms based on pre-bid performance to provide a further dimension to our understanding of the role of pre-bid performance on the likelihood and consequences of IBOs.

Finally, our study focuses exclusively on IBOs in the UK so future research could seek to replicate our investigation in other countries.

We believe a number of important theoretical and practical implications emerge from our findings. First, there is a need to conceptualize skills and human capabilities not only on an individual, but on a collective dimension, specific to a particular organizational setting, rather than the lump sum of what individuals may be worth on the external labour market [START_REF] Aoki | Corporations in evolving diversity[END_REF].

In the case of private equity funded takeovers that do not involve the existing management team, this may result in the human capabilities of the organization being undervalued. Second, our 29 findings underline the importance of understanding managers not just as slaves to universal personal drives (personal wealth and esteem through empire building), but also as operating in particular social settings, making subjective choices based on their specific knowledge and experiences of past events (see. Simmel,1981). Therefore, those with more insider knowledge of the firm, as opposed to a completely new incoming managerial team, are more likely to have a more detailed and nuanced understanding of past events in the organization's history and, as a result, be better able to formulate organizational strategies that draw on the wisdom that may flow from such experiences. A takeover by 'outsiders' may result in this organization-specific learning being discarded, offsetting any gains from efficiency savings that may be garnered by new managers with less sunk emotional capital in the firm. This highlights the need for new management to better understand the link between employment and performance in the specific corporate setting of the acquired firm. The European Venture Capital and Private Equity Association (EVCA) defines public-toprivate transactions as "a transaction involving an offer for the entire share capital of a listed company by a new company and the subsequent re-registration of that target company as a private company".

2 As discussed in the literature review earlier. 3 The average (median) turnover for the sample companies is £207m (£69.2m) compared to £242.2m (£77.7) for the control companies. The differences in means and medians are not statistically significant at any conventional level.

US

Evidence that post-buy-out there is reduction in the supervisor (non-production) to production staff ratio.

Evidence of an increase in the wage levels of production workers. [START_REF] Bacon | Management buy-outs and human resource management[END_REF] Survey undertaken in 1998-99

Questionnaire survey of UK firms experiencing an MBO between 1994-97 (148 usable responses)

UK

A significant proportion (often more than 50%) of MBOs reported an increase in the importance of HRM and the resources devoted to it after the MBO. Specific areas of improvement included: increased employment, greater employee involvement, increased training, greater employee flexibility, more performance appraisals and merit pay, and an increase in share ownership by staff. Both MBOs involving outside managers and those involving employees had a more positive impact on employees than 'normal' incumbent manager-led MBOs.

The strategy of the MBO also impacts on HRM with customer-focused strategies being more favourable to HRM development (compared to defensive-orientated MBOs). [START_REF] Harris | Assessing the impact of management buyouts on economic efficiency: Plant-level evidence from the United Kingdom[END_REF]) 1982-1999 Plant-level data from 4,877 plants involved in MBOs and 30,875 not involved in MBOs in the UK

UK

• Evidence that MBO plants were less efficient than others in the same industry orior to MBO. • After MBO, MBO plants are more efficient than their industry counterparts.

• Some evidence that the improved post-MBO effic iency may be largely due to a reduction in the labour intensity of production due to the outsourcing of intermediate goods and materials.

Bruining, Boselie, Wright and [START_REF] Bruining | The impact of business ownership change on employee relations: buy-outs in the UK and The Netherlands[END_REF] Survey undertaken between 1999-Questionnaire survey of UK and Dutch firms subject to an MBO (between 1994-97 for UK and

UK and Netherlands

In both countries, there is evidence that MBOs have a positive impact on HR practices (e.g. increases in training, employee involvement, the number of employees and pay levels). The impact is stronger in the non-institutionalised employment setting of the UK compared The growth rate in the number of employees is the percentage growth rate in the average annual number of employees. Panel A contains the descriptive statistics for the sample companies as well as the control companies. The numbers in italic in Panel A are the numbers (levels) of employees. Panel B contains the tests for the differences in means (medians) between each year and the following year for the sample companies and the control companies, respectively. Panel C contains the tests for the differences in means (medians) between the sample companies and the control companies for each year. Profit is company profit before interest and taxation in £000s and turnover is company turnover in £000s. Profit/Turnover is in percentages. Panel A contains the descriptive statistics for the sample companies as well as the control companies. Panel B contains the tests for the differences in means (medians) between each year and the following year for the sample companies and the control companies, respectively. Panel C contains the tests for the differences in means (medians) between the sample companies and the control companies for each year. Profit is company profit before interest and tax in £000s. Employees is the annual average number of employees. Panel A contains the descriptive statistics for the sample companies as well as the control companies. Panel B contains the tests for the differences in means (medians) between each year and the following year for the sample companies and the control companies, respectively. Panel C contains the tests for the differences in means (medians) between the sample companies and the control companies for each year. Turnover is company turnover in £000s. Employees is the annual average number of employees. Panel A contains the descriptive statistics for the sample companies as well as the control companies. Panel B contains the tests for the differences in means (medians) between each year and the following year for the sample companies and the control companies, respectively. Panel C contains the tests for the differences in means (medians) between the sample companies and the control companies for each year. Wages is total wages and salaries in £000s. Employees is the annual average number of employees. Panel A contains the descriptive statistics for the sample companies as well as the control companies. Panel B contains the tests for the differences in means (medians) between each year and the following year for the sample companies and the control companies, respectively. Panel C contains the tests for the differences in means (medians) between the sample companies and the control companies for each year. The performance measure is profit over turnover. Profit is company profit before interest and taxation in £000s and turnover is company turnover in £000s. Profit/Turnover is in percentages. The difference in unexpected performance improvements is defined as the difference between the actual performance in a given year and the mean for the analysts' performance forecast for a sample firm minus the equivalent difference for the same year for the sample firm's control firm. Following [START_REF] Smart | Measuring the effect of restructuring on corporate performance: The case of management buyouts[END_REF], the performance forecasts are all made in the year preceding the acquisition, i.e. year -1. Panel A contains the descriptive statistics for the sample companies as well as the control companies. Panel B contains the tests for the differences in means (medians) between each year and the following year for the sample companies and the control companies, respectively. Panel C contains the tests for the differences in means (medians) between the sample companies and the control companies for each year.

Panel

Panel

Panel

Panel

  examines the impact of takeovers on employment between

  .(2001 and 2002) examine the demand for labour after takeovers in the UK

  and implicit commitments, they are more likely to promote the inevitable agenda of downsizing and productivity enhancement.

  descriptive statistics on the growth rate in the number of employees for each of the two years before the acquisition and each of the three years following the acquisition.We lose the first year of data, i.e. year -3, given that we need two years to calculate each annual percentage change in employment. The mean and median growth rates are reported separately for the sample firms and the control firms, respectively, in Panel A. Panel B contains the test statistics for the difference in means (medians) between each pair of adjacent years for the sample companies and the control companies, respectively. The test statistics used consist of a two-tailed t-test for the difference in means and a non-parametric Wilcoxon sign-rank test for the difference in medians. Finally, Panel C contains the equivalent test statistics for the difference in means (medians) between the sample companies and the control companies for each of the individual years. In other words, Panel B enables us to compare the growth in employment across time for a given type of firms (the sample firms or the control firms) whereas Panel C enables us to compare the growth in the number of employees between the sample firms and the control firms.

  Finally, when viewed in the context of other recent work in the field, our findings justify the usefulness of segregating private equity acquisitions into different categories as each may have different employment consequences.

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  Thomson One Banker defines the -term investors whereas the latter typically have shorter horizons. As we found this definition somewhat arbitrary, we decided to include these additional acquisitions in our sample. We arrived at a total of 73 acquisitions of UK public companies completed over the period 2000 to 2006. Table2provides a breakdown of the industrial classification of our sample of acquisitions.

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  appreciate that our findings may not be generizable to periods before 2000. Second,

	2006, we
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	Wright, M., Renneboog, L., Simons, S., and Scholes, L. 2006. Leveraged buy-outs in the UK
	and Continental Europe: Retrospect and prospect, Journal of Applied Corporate Finance,
	18 (3): 38-55.
	Wright, M., Burrows, A., Ball, R., Scholes, L., Meuleman, M. and Amess, K. 2007. The
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implications of alternative investment vehicles for corporate governance: A survey of empirical research,

  Report prepared for the Steering Group on Corporate Governance.

	Paris: OECD.
	Wruck, K. 2008. Private equity, corporate governance, and the reinvention of the market for
	corporate control, Journal of Applied Corporate Finance, 20 (3): 8-21.

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37 of 49 Corporate Governance: An International Review Corporate Governance: An International Review Table 1: Employment Effects of Management Buy-Outs/Private Equity Acquisitions

	Author(s) (year)	Period of Study	Details of Sample	Country	Main Findings
			76 large management buy-outs		No evidence of significant employment reductions post buy-out (50% of firms actually
	Kaplan (1989)	1980-1986	of public companies (48 of which have post-buyout data on	US	increase employment). When divestments are taken into account, more than 60% of firms increase employment.
			employment)		Overall, no evidence to support the notion that buy-out gains come from the firing of
					employees.
			12,896 manufacturing plants
			linked to firms subject to large
	Lichtenberg and Siegel (1990)	1981-1986	(>$35) leveraged buy-outs. Data involves matching buy-out
			data with Census Bureau
			Longitudinal Research Database

Table 3 : Annual Breakdown of Private Equity Acquisitions and Control Companies

 3

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	Year		2000	2001	2002	2003	2004	2005	2006
	No of Companies	Sample	9	2	4	11	7	14	26
		companies
		Control	9	2	4	11	7	12	23
		companies

Table 4 : Availability of Data for Private Equity Acquisitions and Control Companies for Three Years Before and Three Years After the Acquisition Year

 4 0 is the year when the acquisition was completed.

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	Year		-3	-2	-1	0	+1	+2	+3
		Sample	67	72	72		48	50	42
	No of	companies
	Companies	Control	63	63	63		64	64	61
		companies

Table 5 : Growth Rate in the Number of Employees and Number of Employees

 5

Test statistics for differences in means and differences in medians between years for a given sample

  The asterisks indicate a 5% (**) and 10% (*) level of statistical significance.

	Panel A: Descriptive statistics
			Year -3	Year -2	Year -1	Year 1	Year 2	Year 3
		Mean		11.30	7.85	-1.62	1.97	2.53
	Sample		2,329	2,333	2,520	2,609	2,668	2,944
	Companies	Median		2.89	0.00	-2.76	1.51	1.20
			721	657	651	482	660	748
		Mean		14.37	29.29	15.15	3.94	-1.58
	Control		1,526	1,479	1,810	1,934	1,880	1,929
	Companies	Median		0.63	1.04	1.97	1.29	-1.44
			580	603	650	638	648	715
	Observations	Sample Companies Control Companies	67 62	67 72 62 63	71 72 62 62	47 48 62 62		46 49 61 62	41 41 59 59
	Panel B: Difference	Difference	Difference		Difference	Difference
			between year -3	between year -2	between year -1	between year 1	between year 2
			and year -2	and year -1	and year 1		and year 2	and year 3
		T-test for differences		0.63	1.61		-0.63		-0.15
	Sample Companies	in means differences in Wilcoxon test for		0.17	1.72*		-1.24		0.32
		medians
		T-test for differences		-0.64	0.72		1.89*	1.52
	Control Companies	in means differences in Wilcoxon test for		-0.61	-0.16		0.26		2.17 **
		medians

Panel C: Test statistics for differences in means and differences in medians between sample companies and control companies

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	T-test for differences in	-0.22	-1.18	-2.29**	-0.48	1.23
	means
	Wilcoxon test for		0.79	-0.16	-1.96**	-0.18	1.27
	differences in medians
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Table 6 : Profit over Turnover

 6

Test statistics for differences in means and differences in medians between years for a given sample

								The
	asterisk indicate a 10% (*) level of statistical significance.
	Panel A: Descriptive statistics
			Year -3	Year -2	Year -1	Year 1	Year 2	Year 3
		Mean	-18.76	-2.63	-11.52	-13.95	10.65	9.28
	Sample
	Companies	Median	8.77	9.59	9.35	6.74	4.61	6.05
		Mean	3.11	8.73	10.87	15.69	-4.22	-21.63
	Control
	Companies	Median	7.50	8.30	6.11	7.34	5.82	3.65
		Sample Companies	67	72	72	47	49	41
	Observations	Control Companies	63	63	63	63	63	60
	Panel B: Difference	Difference	Difference		Difference	Difference
			between year -3	between year -2	between year -1	between year 1	between year
			and year -2	and year -1	and year 1		and year 2	2 and year 3
		T-test for differences	-0.78	0.54	0.10		-1.10	0.16
	Sample	in means
	Companies	Wilcoxon test for	-0.48	0.17	1.32		-0.61	0.17
		differences in medians
		T-test for differences	-0.96	-0.48	-0.54		1.68*	0.71
	Control	in means
	Companies	Wilcoxon test for	-0.57	0.42	0.14		1.14	0.71
		differences in medians

Panel C: Test statistics for differences in means and differences in medians between sample companies and control companies

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	T-test for differences in	-1.07	-1.11	-1.48	-1.39	1.39	-1.06
	means
	Wilcoxon test for	0.55	0.75	0.83	-0.97	0.80	1.15
	differences in medians
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Table 7 : Profit over Employees

 7

A: Descriptive statistics

			Year -3	Year -2	Year -1	Year 1	Year 2	Year 3
		Mean	24.20	27.38	18.25	15.07	34.28	28.19
	Sample
	Companies	Median	5.73	6.35	6.47	3.79	5.97	5.36
		Mean	69.0	71.14	78.85	107.19	12.01	-9.83
	Control
	Companies	Median	6.30	8.98	7.95	6.78	5.72	4.50
		Sample Companies	67	72	72	47	48	40
	Observations	Control Companies	62	63	62	62	62	59
	Panel B:

Test statistics for differences in means and differences in medians between years for a given sample

			Difference	Difference	Difference	Difference	Difference
			between year -3	between year -2	between year -1	between year 1	between year
			and year -2	and year -1	and year 1	and year 2	2 and year 3
		T-test for	-0.10	0.27	0.09	-0.76	0.23
	Sample Companies	differences in means differences in Wilcoxon test for	-0.61	0.09	1.15	-0.82	0.09
		medians
		T-test for	-0.05	-0.17	-0.46	1.16	.21
	Control Companies	differences in means differences in Wilcoxon test for	-1.16	0.46	-0.13	0.96	0.35
		medians

Panel C: Test statistics for differences in means and differences in medians between sample companies and control companies

	Page 46 of 49	Corporate Governance: An International Review
		R e v i e w
				C o p
					y
			Year -3	Year -2	Year -1	Year 1	Year 2	Year 3
	T-test for differences in	-1.09	-1.17	-1.46	-1.51	0.30	0.37
	means
	Wilcoxon test for	0.09	-0.34	-0.07	-1.30	0.39	0.76
	differences in medians
				46
		Corporate Governance: An International Review

Table 8 : Turnover over Employees

 8

A: Descriptive statistics

			Year -3	Year -2	Year -1	Year 1	Year 2	Year 3
		Mean	138.98	144.48	144.10	147.60	166.54	159.52
	Sample
	Companies	Median	101.02	107.45	110.67	111.54	122.77	124.79
		Mean	305.80	346.50	279.71	262.00	318.39	324.62
	Control
	Companies	Median	99.40	110.86	113.58	123.41	137.86	135.39
		Sample Companies	67	72	72	48	49	41
	Observations	Control Companies	62	63	62	62	62	59
	Panel B:

Test statistics for differences in means and differences in medians between years for a given sample Difference between year -3 and year -2 Difference between year -2 and year -1

					Difference	Difference	Difference
					between year -1	between year 1	between year 2
					and year 1	and year 2	and year 3
		T-test for differences	-0.16	0.01	-0.11	-0.61	0.22
	Sample	in means
	Companies	Wilcoxon test for	-0.65	-0.35	-0.46	-0.79	-0.21
		differences in medians
		T-test for differences	-0.24	0.41	0.14	-0.44	-0.04
	Control	in means
	Companies	Wilcoxon test for	-0.70	-0.19	-0.56	-0.82	-0.26
		differences in medians

Panel C: Test statistics for differences in means and differences in medians between sample companies and control companies Year -3 Year -2 Year -1 Year 1 Year 2 Year 3

	T-test for differences in	-1.58	-1.59	-1.52	-1.22	-1.36	-1.27
	means
	Wilcoxon test for	-0.42	-0.75	-0.79	-0.81	0.86	0.89
	differences in medians

Page 47 of 49 Corporate Governance: An International Review Corporate Governance: An International Review

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	47

Table 9 : Wages over Employees

 9

A: Descriptive statistics

			Year -3	Year -2	Year -1	Year 1	Year 2	Year 3
		Mean	30.08	32.03	34.46	32.31	34.09	33.80
	Sample
	Companies	Median	24.95	24.30	24.51	26.14	27.62	27.79
		Mean	34.80	35.50	33.72	44.34	46.73	49.32
	Control
	Companies	Median	26.12	26.49	25.52	27.67	31.19	35.13
		Sample Companies	67	72	72	48	49	41
	Observations	Control Companies	62	63	62	62	62	59
	Panel B:

Test statistics for differences in means and differences in medians between years for a given sample Difference between year -3 and year -2 Difference between year -2 and year -1 Difference between year -1 and year 1 Difference between year 1 and year 2

							Difference
							between year
							2 and year 3
		T-test for differences	-0.51	-0.53	0.43	-0.42	0.07
	Sample	in means
	Companies	Wilcoxon test for	-0.29	-0.43	-0.08	-0.74	-0.13
		differences in medians
		T-test for differences	-0.09	0.29	-1.14	-0.21	-0.23
	Control	in means
	Companies	Wilcoxon test for	-0.43	-0.24	-1.08	-0.82	-0.42
		differences in medians

Panel C: Test statistics for differences in means and differences in medians between sample companies and control companies Year -3 Year -2 Year -1 Year 1 Year 2 Year 3

	T-test for differences in	-0.78	-0.60	0.15	-1.17	-1.42	-1.46
	means
	Wilcoxon test for	-0.10	-0.26	-0.09	-0.98	-1.16	-1.29
	differences in medians

Page 48 of 49 Corporate Governance: An International Review Corporate Governance: An International Review

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	48

Table 10 : Differences in Unexpected Performance Improvements

 10

A: Descriptive statistics

		Year 1	Year 2	Year 3
	Mean	1.24	2.01	-0.71
	Median	-0.02	-0.01	-0.71
	Observations	14	9	1
	Panel B:

Test statistics for differences in means and differences in medians between years for a given sample

		Year 1	Year 2	Year 3
	T-test for differences in	0.86	1.03	-
	means
	Wilcoxon test for	-0.22	0.53	-1.00
	differences in medians

Page 49 of 49 Corporate Governance: An International Review Corporate Governance: An International Review

Corporate Governance: An International Review

Corporate Governance: An International Review

to the Netherlands. However, HRM practices overall are still stronger in Dutch MBO firms compared to their UK counterparts. [START_REF] Amess | The wage and employment effects of leveraged buy-outs in the UK[END_REF]) 1999-2004 1,350 LBO firms and a control sample of 4,029 non-LBO firms UK

In the case of all LBOs, there is no discernable difference in employment growth compared to non-LBOs.

In the case of all LBOs, there is evidence of lower wage growth compared to non-LBOs. (between 1994 and 1997) and in the Netherlands (between 1992 and 1998)

UK and The Netherlands

• Evidence that MBOs resulted in an increase in the number of high commitment practices reported. • Some evidence that the increase in the number of high commitment practices is less in the case of private equity backed MBOs, but no evidence of a decrease. • UK MBOs show a more noticeable increase in the number of high commitment practices after the MBO compared to MBOs in the Netherlands. However, this may disguise the already high number of high commitment practices in firms in the Netherlands generally.

Davis, Haltiwanger, Jarmin, Lerner and Miranda (2008) 1980-2005 5,000 MBO firms and a control sample of non-MBO firms US

• MBO firms have lower employment growth both before and after the MBO compared to a matched sample of non-MBO firms. • Up to three years after the MBO employment growth is significantly lower than the control group but this reverses in years +4 and +5 when employment growth at MBO firms is higher. • Post-acquisition, the levels of hiring between MBO and non-MBO firms are similar but the overall differences in employment are accounted for by the loss of existing jobs in MBO firms, possibly due to closure/sale of unprofitable segments. • No evidence that firms lose jobs immediately prior to going private.

• Loss of jobs after going private is at a lower rate than for firms in the same industry remaining public. • In years +4 and +5 after going private there is no evidence of job losses in contrast to firms remaining public which exhibit job losses. • Some evidence that going private firms increase employment but not getting back to pretransaction levels.


Discretization

For simplicity consider a MAYER-type problem with cost functional J(u, x) = g (x(t f )) .

This can achieved by considering the additional state variable x 0 with ẋ0 = f 0 (x, u) , x 0 (0) = 0 .

Then we have

x 0 (t f ) = t f 0 f 0 (t, x(t), u(t)) .

Choose an integer N ∈ N, a stepsize h and grid points t i : h = t f /N , t i : = ih , (i = 0, 1, . . . , N) .

Approximation of control and state at grid points:

u(t i ) ≈ u i ∈ R m , x(t i ) ≈ x i ∈ R n (i = 0, . . . , N)
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Large-scale NLP using EULER's method Minimize J(u, x) = g (x N ) subject to

x i+1 = x i + h • f (t i , x i , u i ), i = 0, .., N -1,
x 0 = x0 , ψ(x N ) = 0, c(x i , u i ) ≤ 0 , i = 0, .., N, s(x i ) ≤ 0 , i = 0, .., N,

Optimization variable for full discretization:

z := (u 0 , x 1 , u 1 , x 2 , ..., u N-1 , x N , u N ) ∈ R N(m+n)+m
ẋ(t) = f (x(t), u(t)), a.e. t ∈ [0, t f ], x(0) = x 0 ∈ R n , ψ(x(t f )) = 0 ∈ R k , ( 0 = ϕ(x(0), x(t f )) mixed boundary conditions ) Mixed Control-State Constraints α ≤ c(x(t), u(t)) ≤ β , t ∈ [0, t f ], c : R n × R m → R Control bounds α ≤ u(t) ≤ β are included by c(x, u) = u. Minimize J(u, x) = g (x(t f )) + t f 0 f 0 (x(t), u) dt

Hamiltonian

Hamiltonian

H(x, λ, u) = λ 0 f (x, u) + λ f (x, u) λ ∈ R n (row vector) Augmented Hamiltonian H(x, λ, µ, u) = H(x, λ, u) + µ c(x, u) = λ 0 f (x, u) + λ f (x, u) + µ c(x, u), µ ∈ R . Let (u, x) ∈ L ∞ ([0, T ], R m ) × W 1,∞ ([0, T ],
R n ) be a locally optimal pair of functions.

Regularity assumption

c u (x(t), u(t)) = 0 ∀ t ∈ J a J a := { t ∈ [0, t f ] | c(x(t), u(t)) = α or = β }
(u, x) ∈ L ∞ ([0, t f ], R m ) × W 1,∞ ([0, t f ],
R n ) be a locally optimal pair of functions that satisfies the regularity assumption. Then there exist an adjoint (costate

) function λ ∈ W 1,∞ ([0, t f ], R n ) and a scalar λ 0 ≥ 0 , a multiplier function µ ∈ L ∞ ([0, t f ], R),
and a multiplier ρ ∈ R r associated to the boundary condition ψ(x(t f )) = 0 that satisfy the following conditions for a.a. t ∈ [0, t f ], where the argument (t) denotes evaluation along the trajectory (x(t), u(t), λ(t)) :

λ(t) = -H x (t) = -(λ 0 f 0 + λ f ) x (t) -µ(t) c x (t) , λ(t f ) = (λ 0 g + ρψ) x (x(t f )) ,
(iia) Minimum Condition for Hamiltonian:

H(x(t), λ(t), u(t)) = min { H(x(t), λ(t), u) | α ≤ c(x(t), u) ≤ β } (iib) Local Minimum Condition for Augmented Hamiltonian: 0 = H u (t) = (λ 0 f 0 + λ f ) u (t) + µ(t) c u (t)
(iii) Sign of multiplier µ and complementarity condition:

µ(t) ≤ 0, if c(x(t), u(t)) = α ; µ(t) ≥ 0, if c(x(t), u(t)) = β , µ(t) = 0 , if α < c(x(t), u(t)) < β .
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Evaluation of the Minimum Principle: boundary arc

Boundary arc: Let [t 1 , t 2 ] , 0 ≤ t 1 < t 2 < t f , be an interval with c(x(t), u(t)) = α or c(x(t), u(t)) = β ∀ t 1 ≤ t ≤ t 2 .
For simplicity assume a scalar control, i.e., m = 1 . Due to the regularity condition c u (x(t), u(t)) = 0 there exists a smooth function u b (x) satisfying c(x, u b (x)) ≡ α (≡ β) ∀ x in a neighborhood of the trajectory.

The control u b (x) is called the boundary control and yields the optimal control by the relation

u(t) = u b (x(t)) .
It follows from the local minimum condition 0 = H u = H u + µ c u that the multiplier µ is given by

µ = µ(x, λ) = -H u (x, λ, u b (x)) / c u (x, u b (x)
H uu (t) > 0 ∀ t ∈ [0, t f ] .
(a) Then there exists a "free control" u = u free (x, λ) satisfying

H u (x, λ, u free (x, λ)) ≡ 0 . (b) The optimal control u(t) is continuous in [0, t f ] .
Claim (b) follows from the continuity and regularity of H.

The continuity of the control implies junctions conditions at junction points t k (k = 1, 2) with the boundary: Rayleigh Problem with Quadratic Control

u free (x(t k ), λ(t k )) = u b (x(t k )) , µ(t k ) = 0 (k = 1, 2).
The Rayleigh problem is a variant of the van der Pol Oszillator, where x 1 denotes the electric current.

Control problem for the Rayleigh Equation

Minimize J(x, u) = t f 0 (u 2 + x 2 1 ) dt (t f = 4.5) subject to ẋ1 = x 2 , x 1 (0) = -5, ẋ2 = -x 1 + x 2 (1.4 -0.14x 2 2 ) + 4u, x 2 (0) = -5.
Three types of constraints: The free control is given by u free (x, λ) = -2λ 2 . Structure of optimal control:

Case (a) : no control constraints. Case (b) : control constraint -1 ≤ u(t) ≤ 1 . Case (c) : mixed control-state constraint α ≤ u(t) + x 1 (t)/6 ≤ 0, α = -1, -2
u(t) =        1 for 0 ≤ t ≤ t 1 -2λ 2 (t) for t 1 ≤ t ≤ t 2 -1 for t 2 ≤ t ≤ t 3 -2λ 2 (t) for t 3 ≤ t ≤ t f       
Junction conditions: Continuity of the control implies

u(t k ) = -2λ 2 (t k ) = 1 | -1 | -1 , k = 1, 2, 3 .
Shooting method for solving the boundary value problem for (x, λ): Determine shooting vector s = (λ(0), t 1 , t 2 , t 3 ) ∈ R 2+3 that satisfies 2 terminal conditions λ(t f ) = 0 and 3 junction conditions. Hamiltonian is regular, control u(t) is continuous.

Junction conditions: -2λ(t k ) = α -x 1 (t k )/6 , α ∈ {0, -1}.
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Case I (c) : Rayleigh problem, structure of optimal control for mixed constraint Note: constraint u(t) + x 1 (t)/6 is "bang-bang". Case II : Rayleigh problem, -2 ≤ u + x 1 /6 ≤ 0 Note: constraint u(t) + x 1 (t)/6 is "bang-singular-bang-singular".

-1 ≤ u + x 1 /6 ≤ 0 -1 -0.8 -0.6 -0.4 -0.2 0 0 0.5 1 1.5 2 2.5 3 3.5 4 4.5 C(x,u) = u + x 1 /6 mixed constraint -1 <= u + x 1 /6 <= 0 u(t) =                -x 1 /6 for 0 ≤ t ≤ t 1 -2λ 2 (t) for t 1 ≤ t ≤ t 2 -1 -x 1 /6 for t 2 ≤ t ≤ t 3 -2λ 2 (t) for t 3 ≤ t ≤ t 4 -x 1 /6 for t 4 ≤ t ≤ t 5 -2λ 2 (t) for t 5 ≤ t ≤ t f               

  Note: Hamiltionian is regular, control u(t) is continuous (analytic).Helmut MaurerTutorial on Control and State Constrained Optimal Control ProCase I (b) : Rayleigh problem, constraint -1 ≤ u(t) ≤ 1Hamiltonian H and adjoint equations are as in Case (a).

-

  Note: Hamiltonian is regular, control u(t) is continuous. Junction conditions: -2λ 2 (t k ) = 1 | -1 | -1 , k = 1, 2, 3Helmut Maurer Tutorial on Control and State Constrained Optimal Control ProCase I (c) : Rayleigh problem, -1 ≤ u + x 1 /6 ≤ 0

-

  Control u(t) is bang-bang-singular. Switching conditions:λ(t 1 ) = 0 , λ 2 (t) ≡ 0 ∀ t ∈ [t 2 , t f ].Helmut MaurerTutorial on Control and State Constrained Optimal Control ProCase II : Rayleigh problem, -1 ≤ u + x 1 /6 ≤ 0

  Helmut Maurer Tutorial on Control and State Constrained Optimal Control Pro Optimal Control Problems with Control and State Constraints Numrical Method: Discretize and Optimize Theory of Optimal C

  Helmut MaurerTutorial on Control and State Constrained Optimal Control ProOptimal Fishing, Clark, Clarke, MunroColin W. Clark, Frank H. Clarke, Gordon R. Munro:The optimal exploutation of renewable resource stock: problem of irreversible investment, Econometric 47, pp.25-47 (1979).

State variables and control variables:

x(t) : population biomass at time t ∈ [0, t f ] ,

renewable resource, e.g., fish, K (t) : amount of capital invested in the fishery, e.g., number of "standardized" fishing vessels available,

E (t) : fishing effort (control), h(t) = E (t)x(t)

is harvest rate , I (t) : investment rate (control), Helmut Maurer Tutorial on Control and State Constrained Optimal Control Pro

Case I (a) : Rayleigh problem, no constraint Normal Hamiltonian:

Minimum condition:

Shooting method for solving the boundary value problem for (x, λ): Determine unknown shooting vector s = λ(0) ∈ R 2 that satisfies the terminal condition λ(t f ) = 0 : use Newton's method

Multiplier :

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Case II : Hamiltonian and switching function

Normal Hamiltonian

The optimal control u(t) solves the minimization problem

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Case II : Hamiltonian

The minimum condition is equivalent to the minimization problem

We deduce the control law

For the control constraint α ≤ u(t) ≤ β with c 1 (x) = 0, c 2 (x) = 1 we get the classical control law

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Case II : Rayleigh problem with -1 ≤ u(t) ≤ 1

Rayleigh problem with control appearing linearly

.

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Case II : Rayleigh problem, α ≤ u + x 1 /6 ≤ 0

and the mixed control-state constraint

Adjoint Equations: Control law for α ≤ u + x 1 /6 ≤ 0

The switching function is

In view of c 2 (x) ≡ 1 we have the control law

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Optimal Fishing: optimal control model

Maximize benefit ( parameters: r = 0.05, c E = 2, c I = 1.1 )

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Optimal Fishing: x 0 = 0.5, K 0 = 0.2, I max = 0.5