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

in pro…t taxes does little to explain the cross-country cross-industry variation in entry ratesbetween high and low entry industries, and neither does a higher level of human capital oraccounting for the business cycle. Again, the e¤ect of private equity survives all robustnesschecks, including the horse race.As mentioned before, our data contains information on the distribution of private equityinvestment across 17 di¤erent industries as classi…ed by EVCA. This calls for a disaggregatedapproach in which we replace our measure of private equity investment at the country level(EV CA i ) with a measure of private equity investment at the country and industry level(EV CA ik ). The …rst di¢ culty is that the disaggregated data comes by country of management,unlike data on total private equity investment, which is reported both by countryof management and country of destination. We convert the industry data by country ofmanagement into country of destination by assuming that in each industry, the gap betweenprivate equity by country of management and by country of destination is the same as thegap between private equity by country of management and by country of destination for thewhole economy. This approach is obviously prone to measurement error and so the resultswe report should be taken with caution. The second di¢ culty deals with the issue of theNACE rev. 1.1 -> EVCA industry classi…cation translation key, highlighted in Section 2,for which we use the translation key developed and presented in Table 4. After repeatingthe estimation reported in Table 5, this time with disaggregated industry data, the e¤ect onnew business incorporation of the interaction of private equity with the industry’s "natural"entry rates are still economically and statistically signi…cant.Finally, we use the fact that the data from EVCA also allows us to account for thestaging of private equity investment (seed, start-up, expansion and replacement, and buyout),and for investment by type of investor (independent, captive, semi-captive, or publicfunds). The caveats of the previous paragraph apply again in the sense that the data onstaging and investor type comes by country of management only, and so our conversionof the data into country of destination relies on the assumption that the gap between, forexample, venture capital investment by country of management and by country of destinationECBWorking Paper Series No 1078August 200929