On the Real Effects of Private Equity Investment - Evidence from New Business Creation

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On the Real Effects of Private Equity Investment - Evidence from New Business Creation

Author Info

Alexander Popov () (European Central Bank, Kaiserstrasse 29, D-60311 Frankfurt am Main, Germany.)
Peter Roosenboom () (Department of Finance, Rotterdam School of Management (RSM), Erasmus University Rotterdam, Burgemeester Oudlaan 50, NL 3062PA Rotterdam, The Netherlands.)

Additional information is available for the following registered author(s):

Alexander Popov

Abstract

Using a comprehensive database of European firms, we study how private equity affects the rate of firm entry. We find that private equity investment benefits new business incorporation, especially in industries with naturally higher entry rates and R&D intensity. A two standard deviation increase in private equity investment explains as much as 5.5% of the variation in entry between high-entry and low-entry industries. We address endogeneity by exploiting data on laws that regulate private equity investments by pension funds. Our results hold when we correct for barriers to entry, general access to credit, protection of intellectual property, and labor regulations. JEL Classification: G24, L26, M13.

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Paper provided by European Central Bank in its series Working Paper Series with number 1078.

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Length: 50 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:ecb:ecbwps:20091078

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This paper has been announced in the following NEP Reports:

NEP-ALL-2009-08-16 (All new papers)
NEP-BEC-2009-08-16 (Business Economics)
NEP-EEC-2009-08-16 (European Economics)
NEP-ENT-2009-08-16 (Entrepreneurship)
NEP-INO-2009-08-16 (Innovation)
NEP-IPR-2009-08-16 (Intellectual Property Rights)
NEP-SBM-2009-08-16 (Small Business Management)

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