On the Real Effects of Private Equity Investment: Evidence from New Business Creation
Alexander A. Popov
European Central Bank (ECB)
Rotterdam School of Management, Erasmus University; Erasmus Research Institute of Management (ERIM)
August 6, 2009
ECB Working Paper No. 1078
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.
Number of Pages in PDF File: 52
Keywords: private equity, venture capital, firm entry
JEL Classification: G24, L26, M13
Date posted: August 9, 2009
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