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Contracting, monitoring, and exiting venture investments in transitioning economies: A comparative analysis of Eastern European and German markets

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  • Hady Farag
  • Ulrich Hommel
  • Peter Witt
  • Mike Wright

Abstract

This paper analyses investment practices in the private equity markets of transitioning economies in Central and Eastern Europe (CEE). Using a proprietary set of survey data and non-parametric tests, the study compares findings for the Czech Republic, Hungary and Poland to those for the more established German private equity market. The analysis also highlights the specificities of early-stage and later-stage investors in truly emerging venture-capital markets. The CEE firms surveyed display investment practices on a par with firms in established private equity markets. The more extensive investment risks faced by CEE private equity firms are largely reflected in their financial contracting and monitoring practices. Several factors hinder the further development of private equity markets in CEE, notably the supply of attractive investment and the lack of viable exit channels other than trade sales. Transformation-related issues impact the private equity markets surveyed only in restricting the level of debt financing used.

Suggested Citation

  • Hady Farag & Ulrich Hommel & Peter Witt & Mike Wright, 2004. "Contracting, monitoring, and exiting venture investments in transitioning economies: A comparative analysis of Eastern European and German markets," Venture Capital, Taylor & Francis Journals, vol. 6(4), pages 257-282, October.
    • Handle: RePEc:taf:veecee:v:6:y:2004:i:4:p:257-282
    DOI: 10.1080/1369106042000258490
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    Citations

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    Cited by:

    1. Kwanghui Lim & Brian Cu, 2012. "The effects of social networks and contractual characteristics on the relationship between venture capitalists and entrepreneurs," Asia Pacific Journal of Management, Springer, vol. 29(3), pages 573-596, September.
    2. Judit Karsai, 2012. "Development of the Hungarian Venture Capital and Private Equity Industry over the Past Two Decades," CERS-IE WORKING PAPERS 1201, Institute of Economics, Centre for Economic and Regional Studies.
    3. Karsai, Judit, 2006. "Kockázati tőke európai szemmel. A kockázati- és magántőkeipar másfél évtizedes fejlődése Magyarországon és Kelet-Közép-Európában [Venture capital through European eyes. The development of venture a," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(11), pages 1023-1051.
    4. Groh, Alexander P. & Liechtenstein, Heinrich & Canela, Miguel A., 2008. "Limited partners' perceptions of the Central Eastern European venture capital and private equity market," IESE Research Papers D/727, IESE Business School.
    5. Kerstin Bernoth & Roberta Colavecchio & Magdolna Sass, 2010. "Drivers of Private Equity Investment in CEE and Western European Countries," Working Paper / FINESS 3.5, DIW Berlin, German Institute for Economic Research.
    6. repec:diw:diwfin:diwfin03050 is not listed on IDEAS
    7. Mike Wright, 2007. "Venture capital in China: A view from Europe," Asia Pacific Journal of Management, Springer, vol. 24(3), pages 269-281, September.
    8. Jones, Morgan & Mlambo, Chipo, 2009. "Early-stage venture capital in South Africa: Challenges and prospects," MPRA Paper 42890, University Library of Munich, Germany, revised 21 Nov 2012.
    9. Karsai, Judit, 2022. "A kelet-közép-európai startupok romló kilátásai a nemzetközi kockázatitőke-piacon [Eastern European start-ups looking for international venture capital]," Közgazdasági Szemle (Economic Review - monthly of the Hungarian Academy of Sciences), Közgazdasági Szemle Alapítvány (Economic Review Foundation), vol. 0(9), pages 1009-1030.
    10. Judit Karsai, 2023. "The development of the Central and Eastern European venture capital market in Europe," CERS-IE WORKING PAPERS 2323, Institute of Economics, Centre for Economic and Regional Studies.
    11. Rohan Chinchwadkar & Rama Seth, 2018. "The Choice of Exit: Influence of Private Equity Investors and Buyout Entry," Journal of Emerging Market Finance, Institute for Financial Management and Research, vol. 17(1_suppl), pages 1-26, April.
    12. Portmann, David & Mlambo, Chipo, 2010. "Private equity and venture capital in South Africa: A comparison of project financing decisions," MPRA Paper 42892, University Library of Munich, Germany, revised 16 Nov 2012.
    13. Groh, Alexander P., 2009. "Private equity in emerging markets," IESE Research Papers D/779, IESE Business School.
    14. Aurélie Sannajust & Alexander Groh, 2023. "Pioneering management buy-out and entrepreneurial finance research: Mike Wright’s research legacy," Small Business Economics, Springer, vol. 60(1), pages 1-35, January.

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