Differences of Private Equity Determinants: Country-level Evidence from Europe

Abstract

This paper deals with private equity determinants w i hin the European Union, based on data covering 11 years and 20 countries. W e investigate driving forces of private equity activity in terms of the level of country maturity. The cluster analysis using Ward’s method is performed suggestin g three different clusters of countries with similar properties, to provide be tter country assessment than geographical distribution. We use panel data techni ques to study 26 possible determinants of private equity activity. The study reveals the macroeconomic factors, labour market, and business environment ha ve a significant impact on investment activity in countries, but the expected positive effect of the stock market was not confirmed. Furthermore, the differences b tween private equity determinants in individual clusters have been observe d. While the positive impact of innovation prevails in the more developed countr ies, there is also a negative effect of the interest rate. The less developed cou ntries tend to be more endangered by the crowding-out effect of government expe nditures and strong property rights protection rather than socio-political stabi lity and tax burden.