Determinants of Private Equity Investment in European Companies

20 Pages Posted: 16 Feb 2009

See all articles by Oleg Badunenko

Oleg Badunenko

DIW-Berlin

Nataliya Barasinska

German Institute for Economic Research (DIW Berlin)

Dorothea Schaefer

German Institute for Economic Research (DIW Berlin); JIBS

Date Written: February 13, 2009

Abstract

The paper investigates the motives of Private Equity (PE) investors to engage in European companies. Investment of a PE firm is not viewed unambiguously. First, it is claimed that PE investing is made for the sake of poor redistribution of wealth. Second, PE firm invests because of prior identification of chances to add value to the company. We attempt to resolve these two conflicting conjectures. We use the Bureau van Dijk's Amadeus database of very large, large and medium sized European companies. Our major results can be summarized as follows. A financially constraint or risky company has lower chances to lure a PE firm to invest. On the one hand, the larger the equity of the company the larger the likelihood of receiving investment from a PE firm. On the other hand, larger cash flow is likely to repel PE investor.

Keywords: Private equity financing, leverage, corporate finance

JEL Classification: M14, G24, G34

Suggested Citation

Badunenko, Oleg and Barasinska, Nataliya and Schaefer, Dorothea, Determinants of Private Equity Investment in European Companies (February 13, 2009). Available at SSRN: https://ssrn.com/abstract=1342642 or http://dx.doi.org/10.2139/ssrn.1342642

Oleg Badunenko (Contact Author)

DIW-Berlin ( email )

Mohrenstraße 58
Berlin, 10117
Germany

HOME PAGE: http://obadunenko.googlepages.com/

Nataliya Barasinska

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany

Dorothea Schaefer

German Institute for Economic Research (DIW Berlin) ( email )

Mohrenstraße 58
Berlin, 10117
Germany
+49 30 8978 9162 (Phone)
+49 30 8978 9104 (Fax)

JIBS ( email )

Jönköping, 55111
Sweden

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