Private Equity and the Organization of Firms

Abstract

We study how private equity (PE) buyouts reshape the internal organization of firms. Using data on over 10,000 U.S. PE buyouts combined with resume information of more than five million employees, we track changes in hierarchies, managerial control spans, and functional structure. Contrary to the conventional view that PE streamlines and flattens organizations, we find that hierarchies become deeper after buyouts and managerial control spans shrink. PE-owned firms reallocate employment from product-related functions toward administrative and operative roles, while management expands into more specialized functions. These organizational changes hold across deal types and outcomes and persist after PE exits. Overall, our evidence suggests that PE buyouts create value by strengthening firms’ organizational capabilities—enhancing how tasks and decision-making are structured and coordinated within the firm—rather than concentrating decision-making in flatter hierarchies.