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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.

Pettersen, Håvard Kaarstad
Master thesis
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URI
https://hdl.handle.net/11250/3095432
Date
2023
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  • Master Thesis [4657]
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.

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