I have written about the disciplinary effect of the uncorporate form, particularly in LBOs. See, e.g., here and Chapter 8 of my Rise of the Uncorporation.
Now here’s more evidence: Edgerton, Agency Problems in Public Firms: Evidence from Corporate Jets in Leveraged Buyouts. Here’s the abstract:
This paper uses rich, new data to examine the fleets of corporate jets operated by both publicly traded and privately held firms. In the cross-section, firms owned by private equity funds average jet fleets at least 40% smaller than observably similar publicly-traded firms. Similar fleet reductions are observed within firms that go private in leveraged buyouts. I discuss assumptions under which comparisons across and within firms provide estimates of lower and upper bounds on the average treatment effect of taking a firm from public to private in a leveraged buyout. Both censored and standard quantile regressions suggest that results at the mean are driven by firms in the upper 30% of the conditional jet distribution. Results thus suggest that executives in a substantial minority of public firms enjoy more generous perquisites than they would if subject to the pressures of private equity ownership.
The study controls for the factors that cause firms to select into PE-ownership.
Note that the study finds that “jet fleets in [non-PE private] firms look more like those in publicly-traded firms than those in PE-owned firms.” The author suggests that these are founder-owned firms. Buyouts cause reductions in agency costs in these firms that are similar to those in publicly owned firms. In other words, as I’ve written, following Jensen, this is a story about PE-type governance, not closely vs. publicly held.
Yes, and there was apparently no substitution, consistent with earlier work on publicly held firms by Rajan & Wulf. I wonder why this would be so for jets and not for insider trading, where Todd Henderson found substitution.
Are they controlling for other forms of executive compensation? An alternative hypothesis is that public firms, to reduce adverse publicity from executive compensation, are more likely to use hidden perks than cash, and that executives prefer cash to perks.