Determinants of Private Equity Investment in European Companies

The paper investigates the motives of Private Equity (PE) investors to engage in European companies. Investment of a PE firm is not viewed unambiguously. First, it is claimed that PE investing is made for the sake of poor redistribution of wealth. Second, 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. A financially constraint or risky company has lower chances to lure a PE firm to invest. On the one hand, the larger the equity of the company the larger the likelihood of receiving investment from a PE firm. On the other hand, larger cash flow is likely to repel PE investor