Measuring the economic impact of private equity funds: the South African experience

Private equity financing is undertaken for various reasons: from increasing the working capital base to restructuring the ownership and management of a business. In line with financial globalisation over the past few decades, the private equity industry has grown significantly both in value and geographic extension. This has raised concerns about the global impact of private equity and underlined the need to understand it well. With private equity funds increasingly flowing between developed and developing economies, important questions have emerged on the measurement and impact of private equity on employment, corporate strategy, financial markets and the macroeconomy in general.

Measuring the economic impact of private equity funds

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

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.

Measuring the economic impact of private equity funds: the South African experience

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