An enabling macro-environment for private equity investment in emerging markets

Abstract

To date, research in the field of private equity (PE) has concentrated on investigating the determinants of activity levels in the developed economies of the United States and Europe, to the exclusion of emerging market economies. This points to a gap in the literature, highlighted by the increasing volumes of investment in this asset class as investors seek higher returns outside of the relatively depressed developed economies post the global financial crisis.This descriptive research study contributes to the body of PE research by examining the determinants of PE activity in 25 emerging market economies for the period 2000 to 2011. In addition to examining the impact of previously identified factors on emerging market PE activity, this study adds to the body of knowledge by making use of the techno-economic paradigm to gauge the impact of technology and innovation factors on PE activity. The study is further enhanced by the inclusion of literature relating to small states and how these concepts apply when distinguishing between BRIC and non-BRIC countries.The research provided strong evidence for the importance of technology, and moderate evidence for human capital, as determinants of PE activity, particularly for small states (or relatively small states when one compares the non-BRIC countries to BRIC). PE in BRIC appears driven by population size as a control factor in the study, while corporate governance is not a significant factor for emerging market PE activity, contrary to studies conducted in developed markets.