The Impact of Private Equity Ownership on Firm Performance: Evidence from European SMEs

The economic consequences of private equity (PE) ownership remain one of the most debated questions in corporate finance, while evidence for European small and medium- sized enterprises (SMEs) remains comparatively limited. This thesis argues that much of the disagreement in the existing literature reflects the difficulty of separating the causal effects of private equity ownership from the characteristics of the firms that private equity investors choose to acquire. The empirical analysis is based on a matched sample of 539 European SMEs acquired through private equity buyouts completed between 2014 and 2024. The sample was constructed from an initial sample of 8,544 treatment events identified in the Orbis M&A database. To estimate the causal effect of private equity ownership on firm performance, the analysis combines propensity score matching with a staggered difference-in-differences design, following Sun and Abraham (2021). The findings clearly distinguish between outcomes that can be interpreted causally and those that cannot. Private equity ownership is associated with a deterioration in profitability and operating efficiency, while its most robust financial effect is a systematic shift towards longer debt maturities without a corresponding increase in overall leverage. By contrast, the apparent changes in firm size fail the identifying assumptions required for causal interpretation and are more plausibly explained by selection into treatment than by private equity ownership itself. These findings are confirmed by a wide range of robustness checks. By explicitly distinguishing causally identified effects from descriptive associations driven by selection into treatment, this thesis helps explain part of the conflicting evidence in the private equity performance literature. More broadly, it highlights the importance of testing the parallel trends assumption, as apparent effects of private equity ownership may otherwise reflect the characteristics of firms selected for acquisition rather than the consequences of ownership itself.