Exploring Institutional Determinants of Private Equity and Venture Capital Activity in Europe

Aleksandra Jandric () and Adam Gersl
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Aleksandra Jandric: Institute of Economic Studies, Charles University, Prague, Czech Republic & Faculty of Economics, University of Banja Luka

No 2024/30, Working Papers IES from Charles University Prague, Faculty of Social Sciences, Institute of Economic Studies

Abstract: This paper examines the determinants of private equity activity across Europe. We analyze a total of 43 explanatory variables, categorized into six groups: Economy; Finance and capital markets; Quality of institutions; Life quality; Economic freedom and Globalization. We assess their impact on three target variables representing overall private equity activity: Investments, Divestments and Fundraising. The study covers 26 European countries over the period from 2007 to 2022. First, we use Bayesian Model Averaging (BMA) to identify which variables are essential for further analysis. We then conduct a multicollinearity test and remove variables highly correlated with those deemed significant by BMA. The final step involves panel data analysis to identify the key variables that countries should prioritize in order to enhance their private equity activity and make the necessary policy adjustments to improve their attractiveness in the private equity sector. Our findings highlight the significance of certain variables that have not been previously analyzed, alongside some traditionally acknowledged factors. Notably, trade openness, bank credit to the private sector, public spending on education, inflation and labor force emerge as significant determinants across Investments, Divestments, and Fundraising.

Keywords: Private equity; Venture capital; Fundraising; Investments; Divestments; Bayesian Model Averaging; Panel data analysis (search for similar items in EconPapers)
JEL-codes: C58 E44 G11 G24 G28 M13 O21 (search for similar items in EconPapers)
Pages: 46 pages
Date: 2024-09, Revised 2024-09
New Economics Papers: this item is included in nep-cfn, nep-eec, nep-eur and nep-fdg
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Persistent link: https://EconPapers.repec.org/RePEc:fau:wpaper:wp2024_30

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