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There's no need to be a pioneer in emerging private equity markets

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  • Sannajust, Aurélie
  • Groh, Alexander Peter

Abstract

There is currently considerable enthusiasm for emerging private equity markets, where investors believe they have access to “untapped deal flow”. Early entry may allow them to capitalize on exceptional growth opportunities; however, the pioneering investors enter immature capital markets and have no local transaction experience. This may outweigh the potential benefits of low deal-flow competition and expected growth. We address this potential drawback by analyzing a unique, hand-collected dataset of emerging private equity market transactions. We refer to 1157 deals in 86 host countries between 1973 and 2009, and find that early transactions underperform later deals. The evidence presented is robust and consistent with the improvement in the deal-making environment over time and the benefits of learning how to conduct emerging market private equity deals. The learning benefits are stronger if investors are located in the same country as the investee firm.

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  • Sannajust, Aurélie & Groh, Alexander Peter, 2020. "There's no need to be a pioneer in emerging private equity markets," Journal of Corporate Finance, Elsevier, vol. 65(C).
    • Handle: RePEc:eee:corfin:v:65:y:2020:i:c:s092911992030225x
    DOI: 10.1016/j.jcorpfin.2020.101781
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    More about this item

    Keywords

    Emerging markets; Venture capital; Private equity; Alternative assets;
    All these keywords.

    JEL classification:

    • G23 - Financial Economics - - Financial Institutions and Services - - - Non-bank Financial Institutions; Financial Instruments; Institutional Investors
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • P52 - Political Economy and Comparative Economic Systems - - Comparative Economic Systems - - - Comparative Studies of Particular Economies

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