On the real effects of private equity investment: evidence from new ...

fall under 1 EVCA class, and for 15 industries there is a clear "winner" (majority of 3-digitclasses), but still the possibility of a measurement error remains. In these empirical exercises,we use di¤erent ways of matching the industries in the third group to EVCA classes, and wealso perform the analysis after excluding them altogether. The reported results are robustto this method.Our sample selection procedures leaves us with the same sample as in Klapper et al.(2006) in terms of business entry. This allows us to test the e¤ect of private equity onbusiness entry accounting for the e¤ect of entry barriers in a sample in which the e¤ect ofentry barriers has already been documented.3 Empirical methodologyWe use a cross-industry cross-country regression as our main empirical model:Entry ij = 0 + 1 (EV CA i(k) Entry US ) + 2 (X i Z j ) + 3 D i + 4 D j + " ij (1)where Entry ij denotes the share of …rms less than 2-years old in country i in industry j;EV CA (i)k denotes private equity investment in country i, or in EVCA industry class k incountry i, normalized by the country’s GDP and measured as total volume or disaggregatedby stage; Entry US denotes the "natural" industry entry rate, as measured using US data;X i is a vector of country characteristics; Z j is a vector of industry characteristics 3 ; D i is amatrix of country dummies; D j is a matrix of industry dummies; and " ij is the idiosyncraticerror.This speci…cation has become very popular in the …nance and growth literature because italleviates the small sample problem of cross-country regressions, and it allows for eliminatingthe e¤ect of unobservables characteristics of the business environment by including countrydummies. Industry indicator variables are also included to account for unobservable industry-3 We use j to denote NACE Rev. 1.1 industry class and k to denote EVCA industry class as they are notidentical, but they can be matched.ECBWorking Paper Series No 1078August 200917