Private Equity and Growth

Boyan Jovanovic (), Sai Ma and Peter Rousseau

No 28030, NBER Working Papers from National Bureau of Economic Research, Inc

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.

JEL-codes: E44 (search for similar items in EconPapers)
Date: 2020-10
New Economics Papers: this item is included in nep-cfn, nep-dge and nep-mac
Note: EFG
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Published as Boyan Jovanovic & Sai Ma & Peter L. Rousseau, 2022. "Private equity and growth," Journal of Economic Growth, vol 27(3), pages 315-363.

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