The Determinants Of Private Equity Funding:Evidence From Germany

Private equity, as an alternative investment, offers a financing method for enterprises and plays a key role in financial system. The development of Private Equity in America is the most mature in the world. And the following countries in Europe and Asia have achieved some successes in some way. Under this environment, this paper arms to analyze the determinants of private equity for a sample of Germany from1991to2010. And the experience of Germany could be used to guide the Private Equity fund development in China.This thesis consists of six chapters. It firstly introduces definitions and operations of Private Equity. Then the third chapter analyze the environments and the history of PE development in Germany, it characters included. The fourth chapter comes to the core part of this dissertation. Factors influencing fundraising and investment were discussed in chapter four. And the following is the empirical study of these factors. At last, the lessons taken from German experience are referred to analyze the challenge and development of PE in our country.This paper analyses the determinants of private equity for a sample of Germany from1991to2010. Extending the equilibrium model from Jeng&Well(2000), the empirical model in this paper includes many of the determinants already tested in previous studies. In addition, we test whether the DAX index, SME’s equity ratio, self-employment rate and annual amount of mergers are important factors in explaining private equity fundraising and investment.In particular this paper considers the importance of initial public offerings, long-term interest rate, DAX index, SME’s equity ratio, self-employment rate and annual amount of mergers. Aggregated data from German private equity market as well as macroeconomic data are used to estimate the multi-linear models. Empirical results show R&D growth rate, self-employment rate and annual amount of mergers but initial public offerings and SME’s equity ratio are the key drivers of private equity aggregate fundraising. And although different sources of private equity fundraising are all influenced by annual amount of mergers, they are also affected by different factors. Firstly, fundraising from banks are positive to DAX index. Secondly, R&D growth rate positively affects the fundraising from government. Lastly, fundraising from private investors and corporate and other sources are also positively derived by the entrepreneurship.And for the drivers of private equity investment, results show that interest rate, unemployment rate, market capital growth rate negatively impacted aggregate investment while self-employment rate and annual amount of mergers are positive to the aggregate investment. This paper also shows that different types of private equity investing are affected by differently by these factors. IPOs are strongly positive to early stage venture capital investment, but not other types of investment. Also IPOs has negatively impact to buyout investment, which indicate that increase in IPOs exit decrease the number of exit by merger so that it lead to lower level of buyout investment. Both early stage venture capital investment and expansion stage venture capital investment are positively impacted by annual amount of mergers. Finally, although interest rate negatively impacts all investment stages including the aggregate investment, early stage venture capital investment, expansion stage venture capital investment and buyout investment, interest rate is the strongest driver only for buyout investment.