Contracting, monitoring, and exiting venture investments in transitioning economies: A comparative analysis of Eastern European and German markets

Abstract

This paper analyses investment practices in the private equity markets of transitioning economies in Central and Eastern Europe (CEE). Using a proprietary set of survey data and non-parametric tests, the study compares findings for the Czech Republic, Hungary and Poland to those for the more established German private equity market. The analysis also highlights the specificities of early-stage and later-stage investors in truly emerging venture-capital markets. The CEE firms surveyed display investment practices on a par with firms in established private equity markets. The more extensive investment risks faced by CEE private equity firms are largely reflected in their financial contracting and monitoring practices. Several factors hinder the further development of private equity markets in CEE, notably the supply of attractive investment and the lack of viable exit channels other than trade sales. Transformation-related issues impact the private equity markets surveyed only in restricting the level of debt financing used.