What Drives Private Equity and Venture Capital in Central and Eastern Europe Countries: Focus on Serbia
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Abstract
The paper examines the main drivers of Private Equity (PE) and Venture Capital (VC) capital into the Central and Easter European (CEE) market. In addition, we analysed the current trends in the industry. Although most of CEE economies remain far behind EU-15 countries in the amounts invested trough PE and VC industry, the region is becoming increasingly attractive. Poland, Hungary, Slovakia, Romania and Czech Republic currently attract the majority of PE/VC investors. Investment activities in CEE observed by sector, show that the largest total investments are made in the sector of consumer goods and services, in the sector of Information and communication technology and in life sciences.CEEprivate equity market remained dominant in buyouts, where VC as a proportion of total investment activity remained relatively low. Main drivers of the region are increased economic activity, favourable tax rates, tax incentives for investors and high quality of labour with low costs. According to SWOT analysis, Serbia has many advantages in terms of attracting PE/VC investments, with the most important natural factors such as geographical position and wealth in natural resources, but also the efforts made in recent years like reforms, improvement of fiscal discipline, and introduction of numerous incentives in order to attract investments.
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Black, Bernard and Ronald J. Gilson. (1998). “Venture capital and the structure of capital markets: Banks versus stock markets.” Journal of Financial Economics. 47(3). 243-277.
Bruton, Garry and Ahlstrom, David. (2003). “An institutional view of China's venture capital industry: explaining the differences between China and the West”. Journal of Business Ventures 18: 233–259.
Cao, Jerry X., Douglas Cumming, Meijun Qian, and Xiaoming Wang. (2015). “Cross-border LBOs.” Journal of Banking&Finance. 50:69-80.
Chakrabarti, Rajesh, Swasti Gupta-Mukherjee, and Narayanan Jayaraman. (2009). “Mars–Venus Marriages: Culture and Cross- Border M&A.” Journal of International Business Studies. 40(2009). 216-236.
Cherif, Mondher and Kaouthar Gazdar. (2011). “What drives venture Capital Investments in Europe? New results from a panel data analysis.” Journal of Applied Business Economy 12: 122–139.
Croce, Annalisa, and José Martí. (2016). “Productivity Growth in Private-Equity-Backed Family Firms.” Entrepreneurship Theory and Practice. 657-683.
Djankov, Simeon, Rafael La Porta, Florencio Lopez-de-Silanes, and Andrei Shleifer. (2008). “The Law and Economics of Self-Dealing.” Journal of Financial Economics. Vol 88, 3. 430-465.
Đuričin, Sonja and Isidora Beraha. (2016). “SME clustering in Serbia: finding the right business partners and improving the business environment for SMEs”. Final workshop report on clustering: finding the right business partners and improving the business environment for SMEs. Konrad-Adenauer-Stiftung, Ankara, ISBN 978-605-4679-15-7. 213-236.
EIB. (2016). “Assessment of financing needs of SMEs in the Western Balkans countries – Country report: Serbia.”
Fisman, Raymond and Miguel, Edward. (2007). “Corruption, norms, and legal enforcement: Evidence from diplomatic parking tickets.” Journal of Political economy, 115(6): 1020-1048.
Goncalves-Raposo, Ines and Alexander Lehmann. (2019). “Equity finance and capital market integration in Europe”. Policy Contribution, Issue no3, January 2019. 1-13.
Government of the Republic of Serbia. Economic Reform Programme for the Period 2019-2022. https://ec.europa.eu/neighbourhood-enlargement/sites/near/files/serbia_erp_2019-2021.pdf .(accessed October 15, 2019).
Groh Alexander P., Heinrich von Liechtenstein, and Karsten Lieser. (2010). “The European Venture Capital and Private Equity country attractiveness indices.” Journal of Corporate Finance 16. 205-224.
Groh Alexander, Heinrich Liechtenstein, Karsten Lieser and Markus Biesinger. (2018). “The Venture Capital and Private Equity Coutnry Attractiveness Index 2018: Ninth Edition”. IESE Business School, University of Navarra. http://blog.iese.edu/vcpeindex/files/2018/02/report2018.pdf. (accessed October 1, 2019).
Groh, Alexander P. (2009). “Private Equity in Emerging Markets.” Working Paper No, 779, IESE Business School.
Groh, Alexander P., Heinrich von Liechtenstein, and Karsten Lieser. (2008). “The Attractiveness of Central Eastern European Countries for Venture Capital and Private Equity Investors” IESE Business School Working Paper No. D/677; EFA 2008 Athens Meetings Paper. Available at SSRN: https://ssrn.com/abstract=960505. or http://dx.doi.org/10.2139/ssrn.960505. (Accessed October 15, 2019).
Harvie, Charles, Narjoko Dionisius, and Sothea Oum. (2013). “Small and medium enterprises’ access to finance: evidence from selected Asian economies.” ERIA discussion paper series. Retrieved from www.eria.org/ERIA-DP2013-23.pdf. (Accessed September 10, 2019).
Invest Europe. (2018). “Central and Eastern Europe Private Equity Statistics.” June 2019.
Invest Europe. (2018). “Tax Benchmark Study 2018 – Defining rax environments for the private equity and venture capital industry.” www.investeurope.eu. (Accessed September10, 2019).
Johan, Sofia and Zhang, Minjie. (2016). “Private equity exits in emerging markets.” Emerging Market Review 29: 133–153
Kaderabkova, Bozena and Ondrej Ptacek. (2014). “Gap analysis of venture capital markets.” 2nd Economics& Finance Conference, Vienna ISBN 978-80-87927-01-4, IISES.
Kaplan, Steven N., and Antoinette Schoar. (2005). "Private Equity Performance: Returns, Persistence, and Capital Flows." Journal of Finance. Vol. 60, No. 4. 1791-1823.
Kizys, Renatas, and Christian Pierdzioch. (2011). “The Financial Crisis and the Stock Markets of the CEE countries.” Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences. Vol. 61(2). 153-172.
Korczak, Piotr, and Martin T. Bohl. (2005). “Empirical evidence on cross-listed stocks of Central and Eastern European companies.” Emerging Markets Review. Volume 6, Issue 2. 121-137.
La Porta, Rafael, Florencio Lopez-de-Silanes, Andrei Shleifer, and Robert Vishny. (2002). “Investor Protection and Corporate Valuation.” The Journal of Finance. Vol.LVII, No.3. 1147-1170.
Leeds, Roger and Sunderland, Julie. (2003). “Private equity investing in emerging markets.” Journal of applied corporate finance, 15(4): 111-119.
Ljumovic, Isidora, Jelena Lazic, and Aleksandar Vesic. (2015). “Specifičnosti finansiranja u preduzetništvu.” Beograd, Ekonomski institut. ISBN: 978-86-7329-091-1.
Makojević, Nikola. (2009). “Venture capital funds – current position in the economy of Serbia”. Ekonomski horizonti. 2009, 11, (1) pp.25-32.
Minović, Jelena, and Vlastimir Vuković. (2013). “Analysis of the Serbian Capital Market.” Economic Analysis. Vol.46, No. 1-2, 1-11.
Nahata, Rajarishi, Hazarika, Sonali and Tandon, Kishore. (2014). “Success in global venture capital investing: do institutional and cultural differences matter?” Journal of Financial Quanitative Analysis. 49 (4): 1039–1070.
Nahata, Rajarishi, Sonali Hazarika, and Kishore Tandon. (2014). “Success in Global Venture Capital Investing: Do Institutional and Cultural Differences Matter?” Journal of Financial and Quantitative Analysis. Vol.49, No. 4. DOI: 10.1017/S0022109014000568. 1039-1070.
Oberli, Adrian. (2014). “Private Equity in Emerging Markets: Drivers in Asia Compared with Developed Countries”. The Journal of Private Equity. Summer 2014. 45-61.
OECD. (2017). “Financing SMEs and Entrepreneurs 2017: An OECD Scoreboard.” OECD Publishing. Paris. http://dx.doi.org/10.1787/fin_sme_ent-2017-en.
Poutziouris, Panikkos Z. (2001). “The views of family companies on venture capital: Empirical evidence from the UK small to medium-size enterprising economy.” Family Business Review. 14(3). 277-291.
Pradhan, Rudra P., Mak B. Arvin, Mahendhiran Nair and Sara E. Bennet. (2017). “Venture capital investment, financial development, and economic growth: the case of European single market countries.” Venture Capital. Vol. 19 Issue 4. DOI: 10.1080/13691066.2017.1332802. 313-333.
Ptacek, Ondrej, and Bozena Kaderabkova. (2014). “Gap analysis of venture capital markets.” 2nd Economics & Finance Conference, Vienna. ISBN 978-80-87927-01-4, IISES.
Ramadani, Veland. (2014). “Venture capital financing in the Republic of Macedonia: what is done and what should be done?” ACRN Journal of Finance and Risk Perspectives. Vol. 3 No.2. 27-46.
Rao, Mohana P., and Trilok K. Jain. (2002). “Venture Capital Financing: Profile and Strategic Issues”, (Ed.), Strategic Management: Current Trends and Issues. Deep & Deep Publications Pvt. Ltd., New Delhi.
Stefanova, Julia. (2015). “Venture Capital in Central and Eastern Europe: A Comparative Analysis and Implications for Bulgaria.” Journal of US-China Public Administration. Vol. 12, No. 1. 51-59.
Trbovich, Ana, Ana Drašković Malešević and Jelena Miljković. (2014). “The Role of Venture Capital in Economic Transition in Serbia. Ekonomika preduzeća. 62.99-115.
Tykvova, Tereza. (2017). “When and Why Do Venture-Capital-Backed Companies Obtain Venture Lending?” Journal of Financing and Quantitative Analysis. Vol.52, No. 3. 1049-1080.
Veselinović, Petar and Nikola Makojević. (2011). “Venture Capital and Private Equity investing in Western Balkan region”. Industrija. 4/2011. 71-87.