Private equity firms actually make corporate hierarchies deeper and give managers less control after a buyout.
April 25, 2026
Original Paper
Private Equity and the Organization of Firms
SSRN · 6639522
The Takeaway
The common belief is that private equity streamlines companies by flattening the organization and cutting fat. In reality, private equity buyouts tend to add more layers of management and shrink the number of people each manager oversees. This move toward a tall hierarchy is designed to tighten control and ensure strict adherence to financial targets. Efficiency in these firms comes from centralizing power rather than empowering workers. The narrative of the lean, mean machine is a myth that hides a more rigid and bureaucratic structure. Companies that go through a buyout become more complex and hierarchical rather than more agile.
From the 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 a widely cited 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 produc