Implications of Private Equity on Firm and Macroeconomic Level: An Empirical Analysis of Danish Buyouts

Jakob Moos Larsen & Frederik Rytter Jørgensen

Student thesis: Master thesis


The increasing activity on the Danish private equity market has incited considerations about potential implications on portfolio company performance and the economy in general. Our thesis is based on this debate and our desire to investigate the private equity industry. We investigate the performance development of 43 Danish private equity owned portfolio companies relative to their industry peers by using a new method to measure the private equity effect over the entire holding period and test if the private equity owned companies create abnormal returns. This new approach challenges and adds significant value to the findings of previous studies within the scientific field. Our thesis is relevant, because it measures performance over the entire private equity holding period, which there is no existing data on. The analysis is separated in i) a quantitative analysis testing on both the full data sample and a segmented data sample, and ii) a qualitative analysis and discussion of our results by use of interviews with highly profiled private equity professionals and Former Prime Minister of Denmark, Poul Nyrup Rasmussen.
We test different performance measures hereunder growth, profitability and productivity to capture all possible operational value creation parameters. We discuss our findings from the two statistical tests based on input from private equity professionals and critics to create a deeper understanding behind the numbers as well as implications of private equity on macroeconomic indicators such as employment and tax effects.
In the statistical analysis, we find no significant results that the private equity owned portfolio companies outperform their industry peers in the overall performance measures, which conflicted with our expectations. However, on a 95% significance level we document that portfolio companies in terms of employment effects outperform industry peers with a median change of 16.54%. In the segmented analysis, some of the industries outperform the average industry with statistical significance in terms of assets, and we document that there is a positive correlation between the investment focus of private equity firms and historic industry performances. In the qualitative part, we find that private equity firms are very focused on value creation in terms of growth and optimization, because financial engineering and speculations is not value creating in a fierce competitive environment. In the holistic community discussion, we find that most private equity firm’s statements are confirmed by facts whereas the critics are more morally judgmental, without many facts. It seems, as the private equity firms have changed their value creation approach and are more value creating for the economy than previously, whereas the perception amongst critics are still negative.

EducationsMSc in Finance and Strategic Management, (Graduate Programme) Final Thesis
Publication date2017
Number of pages239