Determinants of Nordic Private Equity: Exploring the Key Factors Shaping Investment Activity : A quantitative study of factors influencing private equity investments in the Nordic countries, examining venture capital, buyouts, and growth & turnaround capital.

Abstract

This study provides an extensive analysis of the Nordic private equity market and investment activity. The analysis commenced with a comparative analysis of Nordic countries with Anglo-Saxon markets and other developed European nations in terms of market conditions and investment levels. The initial findings indicated that the Nordic private equity market outperformed most European peers yet fell short of matching the development observed within Anglo-Saxon markets. This assessment led to the notion that the factors influencing investment activity in foreign markets may not translate directly to the Nordic context. Consequently, the primary research question evolved to examine the specific determinants shaping private equity investments in the Nordic region. The study analyzed the investment activity of domestic Nordic private equity funds utilizing a longitudinal dataset for Denmark, Finland, Norway, and Sweden in the period 2007-2019. The investment activity was measured using the overall private equity investment value in addition to venture capital, buyout, and growth & turnaround capital. The study was oriented around five principal dimensions: the investment environment, economic conditions, the labor market, research & development, and tax rates. The dataset incorporated 13 explanatory variables, each embodying various facets of these dimensions. The variables were analyzed using a random effects model with and without time-fixed effects. The analysis identified ten variables as significant determinants of private equity activity in the Nordic region. Our findings emphasized the pivotal role of labor market conditions in shaping private equity activity, with a key driver being fewer regulatory restrictions in the utilization of temporary workers. Moreover, certain elements within the investment environment, particularly stock market liquidity, initial public offerings, and the prevalence of large firms in relation to small and medium-sized enterprises, were recognized as relevant drivers. Interestingly, the corporate tax rate was positively correlated with private equity investments, which contradicts common expectations. Research & development typically exhibited a negative correlation with the dependent variables under consideration. Lastly, the economic conditions dimension had the least influence on private equity investments, with only the long-term interest rate demonstrating a significant association.