Working Paper: NBER ID: w28030
Authors: Boyan Jovanovic; Sai Ma; Peter L. Rousseau
Abstract: We study private equity in a dynamic general equilibrium model and ask two questions: (i) Why does the investment of venture funds respond more strongly to the business cycle than that of buyout funds? (ii) Why are venture funds returns higher than those of buyout? On (i), venture brings in new capital whereas buyout largely reorganizes existing capital; this can explain the stronger co-movement of venture with aggregate Tobin's Q. Regarding (ii), venture returns co-move more strongly with aggregate consumption and therefore pay a higher premium. Our model embodies this logic and fits the data on investment and returns well. At the estimated parameters, the two PE sectors together contribute between 14 and 21 percent of observed growth, relative to the extreme case where private equity is absent.
Keywords: No keywords provided
JEL Codes: E44
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Venture capital investments (G24) | Business cycle response (E32) |
| Buyout funds (G34) | Business cycle response (E32) |
| Venture capital investments (G24) | Tobin's q response (G19) |
| Buyout funds (G34) | Tobin's q response (G19) |
| Venture capital returns (G24) | Aggregate consumption response (E21) |
| Buyout funds returns (G34) | Aggregate consumption response (E21) |
| Tobin's q (G19) | VC intakes (G24) |
| Tobin's q (G19) | Buyout fund intakes (G34) |