We explore the interplay of private equity (PE) ownership and regulations on the employment of PE-owned companies. We first review existing findings of negative influences of PE ownership on the employment of U.S. companies. We analyze how deregulation in the U.S. financial industry fosters financial engineering tactics that allow PE firms to extract value from invested companies, undermining the sustainability of their employment. We contrast this negative employment effect of PE ownership in the deregulated U.S. environment with an arguably positive effect in a country where PE businesses are sufficiently regulated. Specifically, we review South Korea's financial regulations relevant to the PE business and compare them with equivalent regulations in the U.S. We discuss how the Korean government more strongly regulates financial engineering tactics that could be used by PE firms to extract value from invested companies. Based on the review, we suggest that PE firms in Korea are induced to adopt business models that enhance portfolio companies' sustainable business and employment. Accordingly, we predict that PE ownership in Korea is positively related to employment growth. We demonstrate our argument using a dataset of 32,279 Korean companies from 2005 to 2019. Results indicate that PE ownership in Korea is positively related to employment growth both in the year of the buyout (b=8.491, se=.336, p<.001) and five years post-buyout (b=.369, se=.166, p=.026). This positive relationship contrasts with the negative effects observed in the U.S. Our findings highlight the importance of effective regulation in inducing responsible corporate behaviors.
