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Title:Are private equity investors good or evil? PDF Logo
Authors:Badunenko, Oleg
Barasinska, Nataliya
Schäfer, Dorothea
Issue Date:2009
Series/Report no.:Discussion papers // German Institute for Economic Research 901
Abstract:The paper investigates the motives of activity (entry and exit) of Private Equity (PE) investors in European companies. Investment of a PE firm is not viewed unambiguously. First, it is claimed that PE investment is made for the sake of seeking short-term gains by taking control and utilizing the company's resources. Second, a PE firm invests because of prior identification of chances to add value to the company. We attempt to resolve these two conflicting conjectures. We use the Bureau van Dijk's Amadeus database of very large, large and medium-sized European companies. Our major results can be summarized as follows. First, PE firms are less willing to enter the firm if there is already a blocking majority, and they are more likely to leave the firm if control cannot be overtaken. Second, less mature firms are less able to lure a PE firm to invest, thus indicating a safe strategy of PE investors. Third, we do not find empirical evidence that a PE investor comes in to strip a firm of its equity. On the other hand, PE investors are likely to leave the company if it deteriorates in terms of returns and cash. Finally, when comparing the activity of PE and other financial investors, we find essential differences in choosing the field and environment of activity.
Subjects:Private equity financing
leverage
corporate finance
JEL:M14
G24
G34
Document Type:Working Paper
Appears in Collections:DIW-Diskussionspapiere
Publikationen von Forscherinnen und Forschern des DIW

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