Private Equity Investments and Value Creation in Small and Medium-Sized Enterprises

Benjamin Hammer, Nils Härtel, Suleiman Naiem and Bernhard Schwetzler

Chapter 7 in Modern Finance and Risk Management:Festschrift in Honour of Hermann Locarek-Junge, 2022, pp 137-170 from World Scientific Publishing Co. Pte. Ltd.

Abstract: This chapter examines the enterprise value growth of private equity (PE)-backed buyouts in small and medium-sized enterprises (SMEs). Using a comprehensive sample of PE buyouts from 1997 to 2016 in 59 countries, we find that enterprise value growth rates are significantly higher if the portfolio firm is a small or medium-sized enterprise prior to the buyout. These results also hold for subsequent buyout rounds, i.e., the enterprise value growth of both the primary and secondary buyout is higher if the portfolio firm is a SME prior to the initial buyout. Moreover, we show that good access to finance, management buyouts, and SME investments by large funds have a negative effect on SMEs’ enterprise value growth, whereas a PE firm’s venture capital focus reinforces the positive enterprise value growth of SME portfolio firms. Our results are robust to different tests designed to mitigate selection concerns.

Keywords: Finance; Risk Management; Commodities; Energy Finance; Risk; Cryptocurrencies; Asset Management; Banking; Behavioral Finance; Behavioural Finance; Markowitz; Portfolio Selection; Asset Allocation; Crowdfunding; COVID; Pandemic; Corona; Investment Strategies; Low-Risk Investments; Social Banks; Excess Liquidity; Cost of Capital; Utilities; Network Industries; Private Equity; Small and Medium-Sized Enterprises; Black Swan; Statistical Inference; Maximum Likelihood; Bayesian Methods; Tail Risks; Conditional Value-at-Risk; Tail Nonlinearly Transformed Risk; Capital Constraints; Bank Regulation; Subjective Risk Assessment; Expert Knowledge; Model Risk; Risk Factors; Option Pricing; Volatility; Resilience; Supply Chains; Disruption; Systemic Risk; Oil; Renewable Energies; Corporate Risk Management; Power Purchase Agreements; Gold; Precious Metals; Dynamic Correlation; Mixed Data Sampling (search for similar items in EconPapers)
JEL-codes: G11 G3 G32 G4 (search for similar items in EconPapers)
Date: 2022
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