Research news

Private equity investors stick around for longer in newly listed firms in emerging economies, shows new University of Sussex research.

Venture capitalists keep hold of their stakes in companies attached to big conglomerates in countries with weak or corrupt governance, seeming to value control and influence more than a lucrative quick sale, the research has found.

The research team, led by Dr Bruce Hearn at the University of Sussex’s business school, hand-collected and constructed a unique database of 202 firms newly listed in every stock market across Africa.

They found that private equity investors generally did not sell their shares in constituent firms of big business conglomerates operating within emerging economies following their listing on the stock market. This is, the researchers say, because such conglomerates are disproportionately controlled by powerful individuals or clans – by staying invested, venture capitalists can help steer the ship and challenge the dominant, controlling insider group.

These results are reversed when the firm is operating within a better regulated and governed economy. Where investors have legal and regulatory sanctions protecting their interests, they are happy to cash out.

Dr Hearn said: “Minority investors clearly regard firms attached to big, poorly regulated conglomerates as more risky investments.

“They respond to this risk not by getting out quick but by keeping hold of their ownership, which at least gives them some say in the strategic direction and management of the firm and the wider business group.

“Such groups dominate economies around the world but until now little had been known about how they foster entrepreneurship and innovation through the establishment of new group-constituent firms, nor how these are financed.”

The research is published in the February 2018 issue of the Journal of World Business.

Back to news list