By John A. Tures, Professor of Political Science, LaGrange College

Before the 2016 election, a little-known movie named “Equity” was released. It didn’t make much at the box office, but it won over the critics handily and received rave reviews from viewers. It covered the shadowy world of private equity and attempts to expose political corruption. In this article, I look at how private equity firms don’t just have economic impacts. They have political ones too, in an attempt to frame public policy around the interests of the owners of private equity firms.

According to Investopedia, “Private equity is an investment class where firms raise capital to acquire and manage private companies or take public companies private, with the goal of ultimately selling them for a profit. These investments typically require significant capital commitments over several years.”

For supporters of private equity, it’s about investors swooping in, targeting established companies that have potential, but aren’t performing so well, and fixing them up to be more competitive, selling them back or publicly offering them to boost profits. For critics, it’s an a “buy, strip and flip” model which may be more deleterious for the companies targeted.

Paddy Hirsch with Marketplace conjures up images of a better known 1980s movie in his description. “Remember Gordon Gekko in the movie ‘Wall Street?’ He was a private equity guy. And that ‘greed is good’ speech? That’s the private equity hymn,” he writes in describing the decade of the leveraged buyouts (LBOs).

Jason M. Gordon with Law4GA explains “A buy, strip and flip takes place when a private equity organization uses its leveraged buyout to buyout a target company that is further sold in an initial public offering within a short time span. In order to make its financial position better and stronger, the private equity firm may borrow money for declaring dividends, and performing other activities. The private equity firm has the complete authority to have effective utilization of the target firms resources.”

Until now, we’ve largely focused upon and debated the economic impacts of private equity takeovers of companies. What fewer folks are aware of is how this affects politics. What happens when private equity not only controls the economic resources, but also influences the lobbying behavior of the firms it acquires?

That’s what “Investing in Politics: Private Equity and Coordinated Political Activity” authors Florian M. Hollenbach with the Copenhagen Business School and David Szakonyi with George Washington University found in their presentations before seminar audiences at the University of Hamburg, Lund University, Copenhagen Business School, APSA, and the ESSEC Business-Government Workshop.

“We assemble a novel dataset of U.S. leveraged buyouts from 2000-2018, which we match to federal lobbying records,” they wrote. “Applying a doubly robust difference-in-differences estimator, we show that portfolio companies acquired by private equity [PE] subsequently increase their federal lobbying.”

“Then using an issue-level dataset, we find that after a buyout, portfolio companies are five times more likely to lobby on the very issues their PE acquirers had themselves lobbied on,” they continued. “These findings demonstrate that private equity’s success owes not just to financial and operational engineering, but also to deliberate coordination of political influence across portfolios.”

As we navigate the new era of politics, it’s time for scholars like me to go beyond teaching just about hard money contributions, soft money, campaign finance regulations, and even dark money. There is evidently a new way some in business are able to have a bigger voice in public policy.

John A. Tures is a professor of political science at LaGrange College in LaGrange, Georgia. His views are his own. He can be reached at jtures@lagrange.edu or on “X” at @johntures2. His first book “Branded” a thriller novel, has been published by the Huntsville Independent Press (https://www.huntsvilleindependent.com/product-page/branded).