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Abstract:
This paper investigates the wealth effects of private equity (PE) investor purchases of shares in German quoted companies. It is the first study to analyze these effects for the German market which is particularly interesting due to its distinct characteristics with regard to the ownership structure of publicly listed companies and the protection of minority shareholders. We find that PE investors generate positive wealth effects for target shareholders of 5.90% around the event day (t = -1 to t = 0). In addition, we find that the wealth effects of PE investor involvement in Germany are positively related to the target's tax liabilities and degree of undervaluation and negatively related to the target's leverage and the shareholding of the second largest ownership block. The latter effect can be interpreted as a supplementary monitoring effect of the management or a monitoring effect of the largest shareholder through which private benefits of control are reduced.

Private Equity, Corporate Governance, Agency Theory, Event Study

Abstract:
Private equity funds and hedge funds are both alternative asset classes that are continuously growing in importance. Although they have different focuses, they share some characteristics. First of all, both have or allegedly have a significant impact on the economy as well as the financial system they operate in. Therefore, the question of a potential regulation of both asset classes arises. Due to the lack of sophisticated knowledge about the differences of these asset classes, market players fear that attempts to regulate hedge funds will adversely affect private equity funds. Besides the regulatory issue, there are several other links between these two asset classes that have to be looked at. The relationship between those two asset classes is therefore of general importance.

Last months‘ developments in the hedge fund industry (e.g. rumors about turbulences as well as hedge funds forcing the dismissal of the CEO of Deutsche Börse) have now even led to a broad public debate about private equity and hedge funds. At least in Germany the debate has been partly fueled by the fact that both types of funds are highly funded by institutional investors from abroad. Due to this the debate widened and included criticism on Anglo-Saxon style capitalism as well. In the light of the last German elections, hedge funds and private equity funds have even been compared to locusts, notorious for exhausting whole countries. However, the distinction between hedge funds and private equity funds remains very vague in this discussion, so that deep mistrust is spread among the public opinion against these new, mostly unknown and misunderstood types of investors.

For this reason it is important to
* discuss the arguments for or against regulation,
* look at the major links between the two asset classes,
* look at the major differences that exist between the asset classes, and
* conceive a set of criteria to clearly distinguish between both types of funds.

The purpose of this paper is to comment on possible solutions to the above mentioned tasks. It outlines preliminary thoughts and findings. Further, it comments on the steps that we think should be taken to further enhance perception of private equity funds as opposed to hedge funds from a public as well as a regulatory perspective.

Private Equity Funds, Hedge Funds

Abstract:
We address the question of whether hedge fund and private equity investments in public firms are motivated by corporate governance improvements. As opposed to traditional financial investors both HF and PE are likely to have the incentives to alleviate agency conflicts. However, against the background of differences in their business models and organizational set ups, it remains an empirical question of whether they address the same or different agency conflicts. Studying HF and PE activities in a typical Continental European market like Germany promises to offer interesting insights about how HF and PE activities relate to the prevalence of family ownership, concentrated ownership structures and conflicts among majority and minority owners. We document empirical evidence that both HF and PE investments are driven by corporate governance improvements, but seem to address different types of agency conflicts. Whereas HF focus on firms with a lack of a controlling shareholder, in particular family shareholders, PE invest in firms which exhibit the potential to align manager-shareholder interests due to low managerial ownership. Both appear to address free cash flow problems differently. Aiming at dividend increases, HF tend use commitment devices that can be implemented over a short horizon. In contrast, PE are inclined to target firms which are particularly well-suited for a leverage increase because of low expected financial distress costs. This strategy requires a sufficiently long investment horizon.

Private equity, hedge funds, corporate governance

Abstract:
The paper analyzes the suitability of minority shareholdings by private-equity-investors for family firms. The results are based on qualitative analysis of in-depth interviews with family firms, private-equity-investors and experts. The paper covers the motivation and the process of the share sale, the legal structuring of contracts, and the impact of the private-equity-investors on the family firms. The results reflect a strong satisfaction of the family firms with the minority shareholding. Apart from the capital injection, the family firms benefit from the investors' support in corporate governance, controlling and reporting as well as corporate finance. A crucial prerequisite for a successful partnership is the diligent selection of the investor, as their investment approach can differ to a large extent. Additionally, the legal structuring of the relevant contracts is decisive. The shareholders' agreement and the articles of association shall eliminate potential conflicts between the family firm and the private-equity-investor. Regulations concerning the investors' influence and exit are of high importance.

Private Equity, Familienunternehmen, Minderheitsbeteiligung, Family Firms, Minority Shareholdings

Abstract:
In April 2001, Allianz Capital Partners and Goldman Sachs acquired 66.2% of Messer Griesheim shares from pharmaceutical giant Hoechst, which later became Aventis. The remaining minority stake was owned by the Messer family. At EUR 2.1 billion, the buyout represented the largest private equity deals closed in Germany and the largest industrial buyout in Europe at that time. As private equity was gaining ground in Europe and Germany, the Messer Griesheim transaction epitomized a deal where a family regained control of some of its traditional, industrial‑based company's entities. An overall restructuring plan enabled the company to divest non‑core entities and focus on its core activities. Despite reductions in employment, employee development remained a critical issue for management throughout the deal, as the team provided incentives to encourage key employees to stay with the core businesses. The deal also successfully navigated the delicate nature of specific corporate governance aspects of a private equity‑backed family concern with global operations.

Private equity, family firm, employment, corporate governance

Abstract:
This paper investigates the strategy of private equity investors to take public companies private in blockholder-based economies. Drawing on a unique dataset, we provide strong evidence that private equity investors buy companies in order to mitigate potential agency problems and hence to improve the corporate governance. Firms with relatively low or high managerial ownership, high debt capacity and a combination of strong free cash flows and low growth opportunities are more likely to become a private equity target. With regard to the particular continental European ownership structure, the going private companies have larger blockholders and a higher ownership concentration than their publicly remaining counterparts. Hence, the gaining of irrevocable commitments seems to be more important to private equity investors than monitoring and private benefits considerations.

Private equity, going private, continental Europe, ownership

Abstract:
Purpose
This papers analyses the case study of UK fashion retailer New Look and focuses on the impact of private equity on corporate governance, employment and leverage after the public-to-private transaction in 2003.

Design/methodology/approach
We follow a single case study approach to offer in-depth insights into the role of different parties involved in the deal and their perceptions. Our case study is based on semi-structured interviews with key management of New Look, partners of the private equity firms and other important members of the New Look board. In addition, we complemented our analysis with secondary sources (e.g. analyst reports, published articles and financial data of New Look) in order to triangulate our findings.

Findings
The case presents an example of a company that pursued a public-to-private transaction with the support of private equity partners. The envisioned transformation process post-transaction turned out to be highly successful with increasing efficiencies and profits as well as an increase of over 3,500 employees over four years. This paper analyses key success drivers and the role of the private equity partners in achieving this success.

Originality/value
Our paper is the first in-depth case study of a European public-to-private transaction with support of private equity which offers rich evidence on the impact of private equity on corporate governance, employment and leverage.

Private equity, going private, employment, corporate governance

Abstract:
In the course of raising external equity, e.g. from venture capitalists, a quantitative valuation is usually required for entrepreneurial ventures. This paper examines the challenges of quantitatively valuing platform technology based entrepreneurial ventures. The distinct characteristics of such companies pose specific requirements on the applicability of quantitative valuation methods. The entrepreneur can choose from a wide range of potential commercialization strategies to pursue in the course of company development which is difficult to take account of in a quantitative valuation. By developing and applying a systematic map of valuation requirements in this context, we analyze whether the cost, market or income approach is suitable for platform technology based entrepreneurial ventures. We argue that all three valuation methods have drawbacks. Yet, the income approach fulfills most of the requirements and, therefore, is considered to be more suitable for the entrepreneur as well as external equity providers than other quantitative valuation methods.

Entrepreneurial venture, platform technology, young venture valuation, quantitative company valuation, intangible assets, intellectual property, commercialization strategies, value extraction

Abstract:
Social entrepreneurship is not a new phenomenon. Franz von Assisi, Florence Nightingale, Maria Montessori and Friedrich Wilhelm Raiffeisen are just a few examples of social entrepreneurs from the last centuries, even though they were not called social entrepreneurs at their times. However, social entrepreneurship has only relatively recently been identified as a research domain, first in the U.S. and Britain, later also in continental Europe.

Venture philanthropy can be seen as the equivalent of social entrepreneurship in the financial world. The term describes the application of venture capital methods to the financing of social ventures. It is a relatively young phenomenon, but already gaining increasing interest from researchers. But just like entrepreneurship and venture capital differ between countries, social entrepreneurship and venture philanthropy might also differ. The paper therefore gives an overview of social entrepreneurship and venture philanthropy in Germany.

Venture Capital, Venture Philanthropy, Venture Capital

Abstract:
Over the past ten years, private equity and venture capital have played an increasingly important role in the European economy. In parallel to the increase in investments, contribution of the private equity and venture capital industry to employment in Europe has grown.

Against this background, the European Ventura Capital and Private Equity Association has commissioned the Center for Entrepreneurial and Financial Studies (CEFS) at the Technische Universität München to undertake a research study on the contribution of the private equity and venture capital sector to European employment. 201 private equity and venture capital-backed companies participated in the pan-European survey.

The study has found that private equity and venture-backed companies employed between 4.8 and 6.4 million people in Europe in 2004. European private equity and venture capital-financed companies created 1 million jobs between 2000 and 2004. 420,000 new jobs were created in buy-out financed companies and 630,000 new jobs in venture-backed companies within this period. Employment grew in buyout-financed companies by 2.4% and in venture-backed companies by 30.5% on average per year between 1997 and 2004.

venture capital, private equity, employment, economic impact

Abstract:
This paper extends research in the field of private equity investments in family firms. It contributes to the literature by fundamentally analyzing the decision criteria of family firm owners for using minority investments of private equity investors. This type of financing might be of great interest to family firms, as the family firm owner is able to secure majority ownership and control over the family business. Likewise, minority investments might be attractive for private equity investors, as they are mostly not leveraged and therefore independent from capital market turbulences.

Using data from 21 case studies, we identify challenges induced by the family or the business that lead to the phenomenon of private equity minority investments in family firms. We find that perceived benefits and drawbacks of private equity investments are influenced by business and family characteristics. Based on pecking-order theory, resource-based view and the strategy paradigm, propositions as well as a conceptual framework are developed.

Private equity, minority investments, family firms, financing, managerial resources

Abstract:
We compare the characteristics of conglomerates and private equity entities. This is done by examining the differences among their business models. We analyze the relations of the two entity types to their investors on the one hand and to their investments on the other hand. The distinguishing characteristic of private equity entities is that they pursue a stand-alone-perspective with their investment policies, meaning that they treat each investment separately. Therefore, various linkages that exist in conglomerates do not occur in private equity entities. We describe these linkages in detail. We further argue that because of the lack of these linkages in private equity entities the shareholders and debtholders of a private equity entity and its portfolio companies are not faced with the following risks that are specific for a conglomerate: the asset shifting risk, the intra-group profit risk and the capital structure risk. Finally, we define crucial evaluation criteria for identifying a private equity entity and develop a way how regulators and other persons concerned with such a task could do so.

Private equity, conglomerates, investment companies

Abstract:
We analyse whether family firms differ from non-family firms in terms of business segment and geographical diversification or the application of currency hedging instruments. This analysis is based on a unique dataset of 339 publicly listed companies (1,561 firm years) in the German Prime Standard from 2002 to 2006. While there is widespread empirical evidence on differences between family and non-family firms in terms of corporate performance, comparatively little is known about the impact of family firm dimensions on firm behaviour. We try to fill this research gap with a single country study focusing on Germany, an economy where family-control traditionally plays a predominant role in corporate governance.

We find that family firms are less diversified in unrelated business segments. However, there are no differences between family firms and non-family firms in terms of overall and related business segment diversification. For geographical diversification, we do not find convincing evidence for any differences. Finally, our analysis indicates that family firms are less likely to use currency hedging instruments.

In a second step, we go beyond existing research and distinguish between two separate dimensions of family firms: family management and family ownership. Empirical results indicate that those two dimensions have conflictive effects on firm behaviour. Family management, i.e. the involvement of the founding family into firm management, reduces agency costs and thus leads to lower levels of business segment diversification and less currency hedging. In contrast family ownership leads to risk aversion and more business segment diversification. Overall, the family management aspect is more likely to dominate the family ownership aspect.

Family firms, family ownership, family management, risk management, risk aversion, agency costs, diversification, derivatives, hedging, corporate governance

Abstract:
Financing of family firms is a research field with many white spots. This study attempts to bring more light into the current state of research on the financing behavior in family firms. The paper analyses financial goals, financing decisions and the usage of specific financial instruments. Data was gained through a questionnaire that was answered by 237 German family firms.

The results show, that the majority of family firms exhibits a professional financing behavior. For most families the achievement of financial goals is essential. The CFO is in most cases experienced, member of the management board and bases his decisions on long-term financial plans. Additionally, the study indicates that most family firms display on average a healthy equity ratio. Yet, most of them use almost exclusively traditional financial instruments, such as retained earnings and bank loans, and disregard innovative instruments.

Finanzierung, Familienunternehmen, Kapitalstruktur, financing, family firms, financial management, capital structure

Abstract:
In order to implement and scale their ideas to solve social problems, social entrepreneurs need financial as well as non-financial support from external investors. At the same time, there is no common reporting standard instructing social entrepreneurs how to measure and report their performance, risks and organizational capacity in order to better attract these necessary resources. One of the major consequences of this situation is a very high cost of capital for investors in this field and thus an extremely inefficient capital allocation. This paper develops an integrative framework for reporting in social entrepreneurship by drawing on an integrated management model in order to sort, structure and systemize indicators for assessing social ventures.

Social entrepreneurship, reporting, impact value chain, St. Gallen Management Model, social impact measurement

Abstract:
This study examines how family firm characteristics affect capital structure decisions. In our analysis we disentangle the influence of three distinct components of a family firm: ownership, supervisory and management board activities by the founding family. Thereby, we use a unique panel dataset of 660 publicly listed companies (5,135 firm years) in the broadest German stock index CDAX from 1995 to 2006. This paper is motivated by hitherto inconclusive empirical findings on capital structure decisions in family firms from Anglo-Saxon countries. We provide new evidence for a bank-based economy. In this sense, Germany provides a very fruitful research environment as it (i) traditionally has a bank-based financial system and (ii) family firms are considered to be the backbone of the economy.

We find that family firms have significantly lower leverage ratios than non-family firms, independent of the definition of leverage applied. Among the three dimensions of a family firm, management board involvement by the founding family has a consistently negative influence on leverage across all our models. In contrast, the influence of ownership and supervisory board representation is insignificant in almost all of our models. In line with agency theory, we can show that the leverage level is the lowest if the founding family is simultaneously a large shareholder with monitoring incentives and involved in firm management with convergence-of-interest effects. Finally, we detect that the presence of a founder CEO in firm management has a significant negative effect on the leverage ratio. Our results prove to be stable against a battery of robustness tests including a matching estimator technique to demonstrate causal effects.

Family firms, family ownership, family management, founder CEO, agency costs, capital structure, debt-equity ratio, leverage, corporate governance, risk aversion

Abstract:
As most other countries, Germany also faces dramatic regional differences in terms of socioeconomic development. One important driver of such development is the existence of a healthy entrepreneurial activity and the creation of new companies. We argue that venture capital (VC) and especially community development venture capital (CDVC) can be a powerful instrument to stimulate entrepreneurship and to support the growth of ambitious companies. Hence, the present paper deals with the general questions, whether there are regional gaps in the supply of VC in Germany? Whether these regional gaps do geographically correspond to the most deprived areas in Germany, and which kind of VC companies are currently in place in order to close potential regional gaps? Geographically, we find that the north-eastern part of Germany is far more deprived than the rest of the country, but is relatively well supplied with VC. Nevertheless, the primary potential target area for CDVC activities in the country is the federal state of Brandenburg in this area. Our assessment of German players in the VC market reveals that some public VC companies do investments similar to CDVC. However, these companies do not offer real hands-on support for entrepreneurs, and real CDVC engagement in the country is yet to come.

regional development, community development venture capital, regional equity gap

Abstract:
Family firms are an important phenomenon of the German capital market. We analyse the broadest market segment of the German Stock Exchange, the CDAX, for the years 1998 to 2008. According to a founding-family definition almost half of all CDAX-listed non-financial firms in Germany can be classified as family firms. They also represent about one third of all listed non-financial firms' market capitalization. Within these firms the founding family is not only the most important shareholder but also participates actively in most of the boards (management and supervisory board). In about 50% of all family firms the founder also serves as CEO. Family firms are smaller, younger and have higher equity ratios compared to their non-family counterparts. They are represented in all industries with a certain concentration in the services sectors. We confirm and extend previous evidence by Jaskiewicz (2006) and Andres (2008) that family ownership and management has a positive impact on a firm's operating performance. Our analysis of stock market performance provides evidence that family firms are more sensitive to market movements compared to non-family firms.

family firms, Germany, performance

Abstract:
In 2002 a comprehensive survey of German venture capital and private equity firms was conducted. Based on a follow-up survey in 2005, the development of the German venture capital and private equity market can be shown. The first focus of the report lies on structural topics like market structure, portfolio characteristics, employment, age of firms, ownership structure and sources of funds. The second focus lies on the venture capital cycle and covers topics like deal sources, success factors of venture capital firms, investment criteria, value of information, expected returns, deal sizes, investment stages, industries, financial contracts, syndication, monitoring and support, and exits. The last part of the report identifies equity gaps in financing young and innovative companies in Germany and shows the use of public support programs. The report is written in German.

Venture Capital, Private Equity, Germany

Abstract:
Fund-of-fund investments in private equity are becoming increasingly popular due to their potential to diversify across several private equity funds. However, due to the illiquidity and opaqueness of private equity markets only limited knowledge is available on the actual risk profile of fund-of-funds. Hence, we aim at contributing to the field by modeling, quantifying, and testing sensitivities of the risks associated with such investments. We design a detailed cash flow model and adopt the value-at-risk approach, which is modified to fit the two most common measures of return, namely internal rate of return (IRR) and multiple. Based on a proprietary data set of historical transactions we simulate fund-of-funds investments. Further, sensitivity analyses of central input parameters show the impact on risk and return. While reducing the management fee and the carried interest would lead to higher returns, increased diversification reduces risk. Based on our model, reducing the current industry standard of 2% management fee and 20% carried interest of private equity funds increases the mean IRR by 4.3 percentage points.

Abstract:
The impact of private equity firms on employment in their portfolio companies is a controversial topic widely discussed in academia and in practice in recent years. A large body of research has resulted from this debate. The studies are focused on different aspects of employment and are based on a variety of methodologies as well as samples representing e.g. different types of buyouts and geographies. The aim of this paper is to provide access to and enhance the understanding of the highly fragmented literature by way of a systematic review and to discuss areas for future research. We review evidence on employment growth, financial and non-financial indicators of employment in a total of 49 studies. The analysis of similarities and differences of the studies revealed manifold consequences of private equity on employment. Our review reveals that the impact varies across different employment indicators and between geographies. We therefore conclude that it is not possible to label private equity firms either positively or negatively – as 'angels or demons' – as this would not take account of their complex and heterogeneous effects on employees post-buyout.

private equity, employment, industrial relations, entrepreneurial companies, systematic review

Abstract:
In 2002 a comprehensive survey of German venture capital and private equity firms was conducted. Based on a follow-up survey in 2005 the development of the German venture capital and private equity market can be shown. This paper summarizes major findings concerning deal flow, screening, due diligence, value of information, expected returns, deal size, investment stages, syndication, and exists.

The document was made available by courtesy of the publisher Fachverlag der Verlagsgruppe Handelsblatt.

Venture Capital, Private Equity, Germany

Abstract:
True and fair view accounting standards are commonly considered to be the main driver of high accounting quality (i.e. Levitt, 1998). However, previous studies have found that high quality standards are a necessary but not a sufficient condition for high quality financial reporting (i.e. Ball et al. 2003; Leuz et al., 2003; Van Tendeloo/Vanstraelen, 2005). Germany provides an ideal natural experiment to examine whether incentives or standards drive earnings quality in a bank-based economy. This paper contributes to the actual discussion on accounting harmonization in several ways. Using a sample of listed German firms in the period from 1998 to 2008, this is the first study that analyses effects of ownership structures on the decision to voluntarily adopt IFRS. We show that the possibility to access company information via private information channels determined voluntary IFRS adoption and that IFRS did not overcome equity home bias in Germany. Our analysis of changes in earnings quality between the pre and the post adoption period shows that earnings quality mainly improved for voluntary but not for mandatory IFRS adopters. Analysing this phenomenon from a corporate governance perspective provides evidence that the aim to reduce insider ownership is one of the incentives to voluntarily adopt IFRS and thereby improve earnings quality under voluntary IFRS adoption. This is consistent with previous evidence that not standards per se but incentives are main drivers of accounting quality.

IAS regulation, IFRS, corporate ownership structures, insider ownership, incentives, earnings quality

Abstract:
Research and innovation are extremely important for Germany. New insights are generated by research, and new ways of creating value are opened up by technical, organisational, and other innovations. Production, value-creation and employment tend to increase much more in companies which are highly innovative. The public sector can become more efficient and customer-oriented through the implementation of innovations, which also have a positive influence on people's welfare and their quality of life.

Against this background, Germany's politicians have increasingly been considering how best to promote research and innovation, and where the country ranks in the international innovation contest. The Federal Government of Germany therefore decided in 2006 to establish an independent Commission of Experts on Research and Innovation (EFI), with the remit to analyse the structures, trends, performance, and prospects of the German research and innovation system, and to formulate policy recommendations for its further development. This report is the result of our work to achieve this goal.

Public policy, Research, Innovation

Abstract:
Entrepreneurship education plays a crucial role in shaping the attitudes of students towards entrepreneurship as well as spurring the creation of future young companies. It is a crucial topic in any economy and increasingly becoming key on the agenda for universities around the world.

In this study, we took a look at the higher education entrepreneurship education landscape in German-speaking Europe. We have reviewed all universities, including the technical ones, across Germany, Austria, Liechtenstein and German-speaking Switzerland, using a broad definition of entrepreneurship. Our goal was to capture information about all entrepreneurship related activities, not just those labelled entrepreneurship. In this work, we focused on the entrepreneurship and related chairs, which are key hubs for providing teaching, generating research, launching activities and raising awareness.

Education, Entrepreneurship, Entrepreneurship Education

Abstract:
Private equity investments in family firms are so far only barely covered in academic research. In particular, the initiation process leading towards a successful private equity deal has to be better understood. Thereby, not only the formal process steps but also the personal relationships between private equity investors and family firms' owners have to be analyzed. Psychological barriers of family firms towards private equity investors regularly complicate the transaction process and are sometimes even responsible for the failure of negotiations.

Therefore, this paper elaborates on psychological barriers that hamper private equity transactions in family firms. The two-staged qualitative study of this paper includes in a first step explorative interviews with experts. Based on these findings, socio-psychological theoretical constructs are identified and refined. In a second step, semi-structured interviews test resulting hypotheses and enhance generated insights.

The results show that diverging mentalities, prejudices and selective information gathering by family firms are responsible for the failure of initiated private equity transactions. In addition, findings draw attention to the role of so-called mediaries (e.g. tax advisors or lawyers) who can ease the transaction process. They are familiar with the respective mentalities and doubts. As they are accepted cooperation partners of family firms and private equity investors, they can serve as helpful process catalysts.

The document was made available by courtesy of the publisher Fachverlag der Verlagsgruppe Handelsblatt.

Note: Downloadable document is in German.

Private equity, Family Firms, Familienunternehmen, prejudices, mediaries, Vorurteile, Psychologie

Abstract:
Goal structures in family firms seems of particular interest to the field as the overall orientation and the objectives of family firms are determined in an area of potential conflict between the two subsystems of firm and family. We asked shareholders of German family firms to rate the importance of certain goals in the organization's management. By doing a principal component analysis on the ratings given, we identified four central categories of goals that permit a much more detailed analysis than would a simple differentiation between family-related and firm-related goals. The differences among organizations in the identified dimensions of short-term and long-term family goals, as well as growth- and value-orientated firm goals are then assessed in more detail. Among other aspects, we found the existence of an advisory board to be the strongest driver of goal preferences along these dimensions. Theoretically, our findings indicate that, depending on family firm characteristics, agency and stewardship theory are both useful in explaining the goals of the relevant systems of family and firm.

family firms, goal preferences, agency theory, stewardship theory

Abstract:
In 2002 a comprehensive survey of German venture capital and private equity firms was conducted. Based on a follow-up survey in 2005, the development of the German venture capital and private equity market can be shown. This paper summarizes major findings concerning market structure, ownership structure, sources of funds, portfolio structure, employment, and equity gaps.

The document was made available by courtesy of the publisher Fachverlag der Verlagsgruppe Handelsblatt.

Venture Capital, Private Equity, Germany

Abstract:
Despite considerable interest of the general public, the effects of private equity and venture capital investments on employment are not well understood. This study aims at investigating into the scope of total employment in these companies, employment development over the last years and quality of the jobs in venture capital-backed companies. Therefore, the Center for Entrepreneurial and Financial Studies (CEFS) conducted a survey among portfolio companies of private equity companies and venture capitalists. With the support of the European Venture Capital and Private Equity Association (EVCA), 213 responses could be collected.

The results of the study show that companies backed by venture capital or private equity make a significant contribution to employment in Europe. These companies employ about 5.5 million people that represent 3% of the economically active population. Sample companies financed through venture capital and private equity showed between 1997 and 2004 significantly higher average annual growth rates of employment than the aggregated, comparable rate for the 25 countries of the European Union between 2000 and 2004. Especially small companies as well as family businesses exhibited strong growth. The study also shows that R&D investments in venture capital-financed companies mostly created jobs with a high qualification profile.

The document was made available by courtesy of the publisher Fachverlag der Verlagsgruppe Handelsblatt.

Abstract:
The present paper gives an introduction to the situation of social entrepreneurs in Germany. In this context, social entrepreneurs find themselves confronted with the measurement of their performance, the description of their risks and a professional documentation of their work. However, there is a lack of standardization in reporting that could be resolved by developing and implementing a generally accepted standard instructing social entrepreneurs how to assess and communicate their performance and influencing factors to an external audience. It furthermore provides a conceptual framework for a reporting that intends to fill the reporting gap in this sector.

social entrepreneurship, reporting, implementation, Germany

Abstract:
Recent research indicates that the majority of listed firms in Germany (and also in many other countries around the world) have a dominant owner rather than being widely-held. Hence, owner-dominated firms comprise an important subset of listed companies. This article introduces the concept of an ownership-based style index of listed firms in Germany, the German Entrepreneurial Index (GEX®). Introduced in 2005, the GEX® represents recently listed, ownerdominated firms in the German Prime Standard. We review the theoretical foundation and the index construction of the GEX®. In addition, we provide an overview of its development and performance between index inception and end of 2008 and relate this to properties of the German financial market. Finally, we conclude with a critical outlook for the index future against the background of recent developments.

insider ownership, style index, ownership structure, corporate governance

Abstract:
On behalf of the German Federal Government, the Commission of Experts for Research and Innovation presents its second report. This was originally intended to be a “short” report, in which the key indicators of research and development were up-dated and commented on. However, the Expert Commission has decided to do much more than this, and recommends a series of measures to further strengthen the innovation potential of Germany. In particular in the present economic diffi culties, research and innovation policies have a central role to play.

The challenges faced are varied and were already named in the EFI Report 2008. The conditions for the financing of innovations are still not ideal in Germany. The weaknesses of the educational system are already having negative consequences and in the mediumterm could represent an existential threat to the innovation potential. The high degree of specialisation in a few manufacturing sectors is an expression of the particular German strengths, but it also creates dependencies and risks.

Because research and innovation policies are only effective over the medium- to long-term, these problems cannot be solved within a short period of time. But politicians must act more rapidly than in the past. The opportunity of introducing fiscal support for research and development has unfortunately not been seized, and the measures introduced by the Federal Government to improve investment fi nancing are not at all convincing.

In this second report we consider other fields of action: the intensification of knowledge and technology transfer, increasing the attractiveness of science as an employment opportunity, and the promotion of innovation processes in small and medium-sized enterprises, in particular in sectors of the knowledge-intensive services.

Public policy, Research, Innovation

Abstract:
This private equity (PE) value creation analysis is based on deal-level data using a dataset of over 200 completed PE transactions in the period 1989 to 2006. Key findings are that two thirds of value creation can be attributed to operational and market effects, i.e. EBITDA and cash flow growth as well as multiple expansion. The remaining third is due to the use of leverage.

private equity, leveraged buyouts (LBOs), value creation, alpha

Abstract:
For venture capital investors, the valuation of innovative start-ups is usually challenging as classic valuation approaches can not be applied. Therefore, context specific valuation approaches are often used to simplify the valuation process. The First Chicago Method is one of these context specific valuation approaches which takes account of payouts to the investor during the holding period and which models three scenarios: best case, base case and worst case scenario. In comparison to the Venture Capital Method as alternative context specific valuation approach, the First Chicago Method has conceptional advantages but is also characterized by a more complex valuation process.

First Chicago Method, Venture Capital Method, new venture valuation, innovative start-ups, venture capital,