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

This paper deals with private equity determinants within the European Union, based on data covering 11 years and 20 countries. We investigate driving forces of private equity activity in terms of the level of country maturity. The cluster analysis using Ward's method is performed suggesting three different clusters of countries with similar properties, to provide better country assessment than geographical distribution. We use panel data techniques to study 26 possible determinants of private equity activity. The study reveals the macroeconomic factors, labour market, and business environment have a significant impact on investment activity in countries, but the expected positive effect of the stock market was not confirmed. Furthermore, the differences between private equity determinants in individual clusters have been observed. While the positive impact of innovation prevails in the more developed countries, there is also a negative effect of the interest rate. The less developed countries tend to be more endangered by the crowding-out effect of government expenditures and strong property rights protection rather than socio-political stability and tax burden.