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Private Equity and Growth

Author

Listed:
  • Boyan Jovanovic
  • Sai Ma
  • Peter L. Rousseau

Abstract

We study private equity in a dynamic general equilibrium model and ask two questions: (i) Why does the investment of venture funds respond more strongly to the business cycle than that of buyout funds? (ii) Why are venture funds returns higher than those of buyout? On (i), venture brings in new capital whereas buyout largely reorganizes existing capital; this can explain the stronger co-movement of venture with aggregate Tobin's Q. Regarding (ii), venture returns co-move more strongly with aggregate consumption and therefore pay a higher premium. Our model embodies this logic and fits the data on investment and returns well. At the estimated parameters, the two PE sectors together contribute between 14 and 21 percent of observed growth, relative to the extreme case where private equity is absent.

Suggested Citation

  • Boyan Jovanovic & Sai Ma & Peter L. Rousseau, 2020. "Private Equity and Growth," NBER Working Papers 28030, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:28030
    Note: EFG
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    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy

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