Drivers of Private Equity Investment in CEE and Western European Countries

Abstract

A strong private equity market is a cornerstone for commercialization and innovation in modern economies. However, substantial dierences exist in the relative amounts raised and invested in private equity across European countries. We investigate the macro-determinants of private equity investment in Europe, focusing on the comparison between CEE and Western European countries. Our estimations are based on a data set running from 2001 to 2008 and covers 14 Western European and three CEE countries. Applying robust estimation tech- niques we identify a 'robust' set of determinants of private equity activity in both regions. We nd similarities as well as dierences in the driving forces of private equity investments in Western European and CEE countries. Our results suggest that commercial bank lending, equity market capitalization, unit labour costs and corporate tax rates are signicant determinants of private equity activity.