Abstract
We review the evidence on the impact of private equity (PE) ownership on firms, stakeholders, and the economy. We organize this literature using a framework that emphasizes the costs and benefits of PE as an ownership form and implies five main predictions: (i) only some firms are natural PE targets; (ii) PE ownership is optimally temporary; (iii) debt is typically a cheaper source of capital than PE equity; (iv) PE activity is strongly cyclical; and (v) the PE model is a second-best response to underlying agency and contracting frictions. We use this framework to interpret existing evidence and to clarify when, and for whom, PE ownership creates value.