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\title{The Impact of the Macroeconomic and Institutional Environment on LBO Fundraising}
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             \author[1]{Basma  Henchiri}

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\date{\small \em Received: 8 December 2015 Accepted: 31 December 2015 Published: 15 January 2016}

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The most past studies, analyzing the venture capital investments concluded a strong correlation between macro-economic, institutional and entrepreneurial conditions as well as divestment strategies. The purpose of this study is to find out the economic impact of macroeconomic environment and institutional quality on LBO fundraising, using a panel dataset of 19 European countries over 2001-2010. The empirical results confirm the importance of some factors and show that the unemployment rate, interest rate, trade sale and IPO divestments are important determinants in the European LBO market.

\end{abstract}


\keywords{private equity, LBO, macro-economic determinants, institutional determinants, panel data.}

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\let\tabcellsep& 	 	 		 
\section[{I. Introduction}]{I. Introduction}\par
he development of any country depends on the development of its economy. Sowell developed financial sector can increase investment, which promote economic growth. However, in the current global economy (economic and financial conditions), small and medium enterprises are facing difficulties, especially in terms of financial support. Furthermore, the lack of efficient financial markets can be a problem in allocation credit to profitable investments, which stimulate economic growth \hyperref[b19]{(Levine, 1997)}. Essentially, a country's economic development is related to the existence of banking system-channeling savings into productive employment.\par
The critics of contemporary finance focus on the behavior of new financial players such as Private Equity (PE). It has different character compared to other traditional sources of financing. It can play a major role in the economy by representing a support of the unlisted company throughout its existence. It directly contributes to the creation of enterprises, to the promotion of innovation and new technologies, to the growth, to the employment and the renewal of economy.\par
Financial globalization, development of free trade and the revolution in information technology constitute a profound economic transformation that has encouraged the development of PE and its spread  {\ref (Ouidad Yousfi, 2008)}. The Private equity has grown significantly in recent years; its penetration is no longer limited to developed economies and spread to emerging economies. Private equity is the ultimate objective of all investors to realize the return on their investment after a certain period, typically between three to seven years after the original transaction took place.\par
The academic literature for over twenty years documented the correspondence between the macroeconomic environment and the capital investment. However, the economic literature on the determinants of the supply of private equity has been limited to the study of the market PE in Europe and the United State.\par
The first wave of the phenomenon of capital investment during the late 1980s was mainly in the United States, Canada and to a smaller extent in the UK. From 1985 to 1989, these three countries accounted for 89 percent of transactions of leveraged buyout effect of global and 93 percent of the global value of these transactions. The phenomenon of PE is also expanding rapidly in continental Europe. In the period 2000-2004, the market PE of Western Europe (including the UK) had 48.9 percent of the total value of transactions of global leveraged buyout, compared with 43.7 percent in USA.\par
The economic literature on the determinants of the supply of private equity was until then limited to the study of the determinants of capital risk in relation to early stage investments or do not distinguish between types of private equity investors \hyperref[b23]{(Schwienbacher, 2004}). However, few research have interested by LBOs in developing markets. Our study is one of the few to do so. This article focuses on leveraged buyouts; our objective is to analyze the relationship between inflows into these investments and some macroeconomic and institutional factors.\par
The central issue of our research can be summarized by the following question: what determine LBO activity becomes important. The remainder of this paper organized as follows: in Section 2, we discuss relevant literature; in Section 3, we review the data and methodology used to test our hypotheses. Section 4 presents the results of our investigation. Section 5 concludes. 
\section[{II. Revues of Literatures a) LBO market}]{II. Revues of Literatures a) LBO market}\par
The private equity market is worldwide, measured by the average of its annual business investment flows; it is about 100 billion euro per year compared to 280 billion euro per year of capital raised on all procurement actions. The first number idivided into 20 billion euro for all the countries of Western Europe, or 0.3\% of its Gross Domestic Product (GDP). Market dynamics is also measured by the new funds raised, the rhythm depends on market conditions (financial market, economic growth, institutional and legal environment,...).\par
Several studies have attempted to explain why financing by capital investment considered necessary if companies can raise capital by other means. This original financial structure; witch is ideal for supporters of the Theory of Agency  {\ref (Kaplan, 1989)}, combined with good management of the operating cycle and an effective governance structure can allow for significant returns on investment, increase the value of long term assets, and reduce conflicts between shareholders and creditors. In short, it can create value. The decline in the share of investment in venture capital and development capital in favor the buyout (LBO) is a strong movement in recent years.\par
Leveraged buyout transactions represent the late stage of the private equity category, mature and stable firms, while venture capital represents the early stage of the private equity category \hyperref[b15]{(Kaplan, 2005)}.\par
According to the French Association of Capital Investors (AFIC), a leveraged buy-out Leveraged buyouts (henceforth abbreviated as 'LBOs')is defined as the acquisition of another company, partially financed by debt, using a significant amount of borrowed money in the context of a specific legal and tax optimized schema where managers associated in partnership with expert professional investors.\par
Definition of LBOs presented in the book of Cherif and Dubreuille in 2005, as «A leveraged buyout is an acquisition operation of a target company (OpCo) through a holding company (NewCo) which, in addition to a contribution of equity, subscribed debt (senior debt, subordinated debt and mezzanine debt) to finance the purchase. The holding company will pay interest on its debt and pay back the principal from cash flows generated by the acquired company.\par
The 1980s was a period of "overheating" of the LBO market before that market conditions have changed and LBO activity has weakened rather suddenly in the early 1990s. The rapid growth in this market has resulted in conditions of favorable credit market, with this, the emergence of more dynamic financial markets helped the issuance of high-yield debt in particular -a key factor in the previous development of the PE in United States  {\ref (Gompers and Lerner 2002)}. Growth in repurchase activity was also enhanced by the dramatic drop in overall asset prices as part the downturn in the global economy led to the decline of the stock market after March 2000.\par
The recent increase in LBO activity has revived many research efforts. Among the most recent, several papers have considerable contribution in the issue of the determinants of PE investments. Published papers that are most related to our analysis are the Gompers and Lerner (1998), \hyperref[b12]{Jagwani (2000)}, \hyperref[b13]{Jeng and Wells (2000)},  {\ref Marti and Balboa (2001)}, \hyperref[b6]{Felix et al. (2007)}, \hyperref[b5]{Cumming et al. (2008)} and \hyperref[b4]{Cherif and Gazdar (2009)}.\par
We discuss in the following sections the various factors identified in the literature to explain the LBO fundraising. These factors will presented in two categories: macro-economic and institutional factors. 
\section[{b) Macroeconomic and institutional determinants:}]{b) Macroeconomic and institutional determinants:}\par
Given the importance of identifying the determinants of financial development, there has been more research on the fundamental factors for wellfunctioning financial systems. Most of this research has emphasized the role of the legal and institutional factors in explaining the levels of development in financial systems. Indeed, the main works are \hyperref[b0]{Beck et al. (2003)}, Ben Naceur and Ghazouani (2007), Law and Habibullah (2009) and  {\ref Girma and Shortland (2008)}.\par
The impact of a good business environment on investment may come through adopting appropriate macroeconomic policies, encouraging competition and developing a legal and institutional framework to promote a strong financial transparency. The changes in the macroeconomic, financial and institutional context are the first explanatory factor for the rapid growth of this market.\par
The literature documents well the correspondence between the macro-financial environment and the flow to the PE  {\ref (Gompers et al. 2005)}.\par
The correlation between the macroeconomic data and good or bad conduct of operations is not certain. However, the LBO directly influences the conduct of the investment policy as well as operational management of the acquired companies.\par
Jeng and Wells (2000) developed a model to assess the macroeconomic determinants of investment in venture capital. They explain this investment by the value of IPOs, the rate of GDP growth, the growth rate of the market capitalization, the rigidity of the labor market, the level of private pension fund and the financial statements published by country. \hyperref[b22]{Schertler (2003)} analyzes the forces acting on the activity of venture capital by the following variables: the liquidity of stock markets as measured by market capitalization, the human capital endowment by the number of people working in unit's research and development or the number of patents registered and rigidity in the labor market.\par
To test the impact of labor market on private equity investments, \hyperref[b6]{Felix et al. (2007)}, Cherif and Gazdar (2009) used the unemployment factor. Almost all subsequent work suggested a positive relationship between economic growth as measured by GDP growth and the supply of capital investment.\par
Several methods are available to private equity investors to exit their investment. , the most important and widely used exits routes are: Initial Public Offering  {\ref (Gompers and Lerner, 1998;}\hyperref[b13]{Jeng and}\hyperref[b13]{Wells, 2000 and}\hyperref[b6]{Felix et al 2007.)}, Trade Sale and Leveraged Recapitalization  {\ref (Marti and Balboa, 2001)}. The literature on the determinants of venture capital insists on the positive relationship between the amount of money invested in this activity and the financial markets situation.\par
Black and Gilson (1998) stipulate that welldeveloped stock market, that offers to the venture capitalists the opportunity to exit via an IPO (IPO: Initial Public Offering), is a key factor in the dynamics of venture capital. They concluded that the development of the capital market is inseparable from the existence of developed and profound financial markets that is able to take up the IPOs of companies. Other studiers like \hyperref[b15]{Kaplan and Schoar (2005)} show that market liquidity, represented generally by market capitalization, have a positive impact on the development of investments in venture capital.\par
In addition to macro-economic factors, the institutional environment affects investment. This emphasize the influence that institutional factors can have on investment. Following the clarification of the decree on the rule of prudence that changed in the US in 1978 for new commitments, the venture capital riding abruptly. This reform, by facilitating investment of pension funds in private equity, led to a sharp increase in funds from pension funds dedicated to the capital investment. \hyperref[b0]{Beck et al. (2003)} studied, in differences political systems, the relationship between the legal, institutional and financial frameworks. The empirical results found that countries inheriting the civil law tradition have not significantly well-developed financial systems and investor protection, comparable to the countries whose follow a common law legal system. \hyperref[b13]{Jeng and Wells (2000)} to study the relationship between the supply of venture capital and the regulatory factor, used an index of quality of financial reporting standards in each country, they find a positive effect since the laws facilitate financial and accounting control of venture capital. Thus, they cited the efficiency of bankruptcy proceedings, but it was not included in their empirical analysis because they had difficulty in finding good measures for this.\par
Cherif and Gazdar (2009) examine the determinants of institutional venture capital investment using the Index of Economic Freedom as an indicator of institutional quality. The composite index is a simple average of 10 individual freedoms, each of which is essential to the development of personal and national prosperity. They find that the institutional environment plays an important role in determining the investment of European Venture Capital. Through our literature review, we found that various factors which both macroeconomic, financial and institutional flows can explain to the capital investment. The results from previous studies on the determinants of the supply of private equity are interested in the venture capital industry only. In this article, we will try to do an empirical study to analyze another aspect of capital investment, operations leverged buyout (LBO). Our empirical methodology is the result of the work of Gompers and Lerner (1998), \hyperref[b13]{Jeng and Wells (2000)},  {\ref Marti and Balboa (2001)}, \hyperref[b21]{Romain and al. (2004)}, \hyperref[b6]{Felix et al. (2007)} and recently \hyperref[b4]{Cherif and Gazdar (2009)}. 
\section[{III. Research Methodology a) Data description}]{III. Research Methodology a) Data description}\par
In order to evaluate empirically the determinant of LBO investment, we used cross-country regression on a sample of 19 European countries: Austria, Belgium, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Netherlands, Norway, Poland, Portugal, Spain, Sweden, Switzerland and the United Kingdom. The data cover the period of ten years, from 2001 to 2010. Thus, we use panel data of 190 observations. Figure \hyperref[fig_0]{1} gives an overview of the amount and numbers of LBO investment per years. There are a strong growth especially in 2006. More than 58\% of total investment in LBO was in United Kingdom with 28968318 ?. In what follows, we try to explain these regional and cross-country differences by means of an econometric model. 
\section[{Global Journal of Management and Business Research}]{Global Journal of Management and Business Research}\par
Volume XVI Issue VIII Version I Year ( )  Many researchers have focused on studying the impact of certain macroeconomic and institutional variables on investment in private equity. From these studies, we suggested a set of variables for our model to estimate. We will attempt to explain the different variables that could affect investment in LBO. These variables will divided into two categories, the first combines the variables that are macroeconomic and institutional, while the second category includes variables related directly to the private equity process.\par
Concerning macroeconomic variables, we introduced two economic growth indicators such as GDP growth, the Stock market capitalization  {\ref Lerner, 1998 and}\hyperref[b13]{Jeng and}\hyperref[b13]{Wells, 2000)}, the interest rate (Gompers and Lerner, 1998; and Romain de La Potterie, 2004 and \hyperref[b6]{Felix et al., 2007)} and the unemployment rate \hyperref[b6]{(Felix et al., 2007)}.\par
In addition to several determinants traditionally cited in the literature, with the exception of the recent study \hyperref[b3]{Cherif and Gasdar (2009)} we use in our study two institutional quality variables (regulation and corruption). As indicators of technological opportunities, we use expenses in Research and Development.\par
We consider, also, the variables related directly to the private equity process, we test as previous studies  {\ref Gompers and Lerner, 1998}  
\section[{b) Econometric Methodology}]{b) Econometric Methodology}\par
Considering the nature of the data collected (bivariate), we will use the econometrics of panel data.\par
The panel data regression based on the following model:Y it = ? it + ? it X it + ? it (1)\par
Where we defined Yi, the dependent variable (investment in LBO), Xi was a matrix of macroeconomic and institutional variables composed of GDP growth (GROWTH), interest rates (INTERST), unemployment (UNEMPL), stock market capitalization (MCAP), opportunities technological (RD), variables directly related to the process of equity and corruption (CORRP) and regulation (REGLEM) variable. ? it was the unobserved country specific fixed effect, and ?it was the error term for each observation. We estimated regressions by using Ordinary Least Squares (OLS).\par
At equilibrium, we have:Offer LBO it = Demand LBO it = Investments LBO it (2)\par
In order to judge the quality specification of our model, additional specification tests are necessary to select the appropriate estimator. To verify existence or not of an individual specific effect must be developed before estimating a homogeneity test. We then proceeded to test \hyperref[b11]{Hausman (1978)} which select the appropriate estimator; it is the panel's techniques (fixed effects and random effects specifications).We can therefore apply the ordinary least squares or generalized to estimate different models and the results will analyzed in the following paragraph. 
\section[{IV. Empirical Results}]{IV. Empirical Results}\par
Tables \hyperref[tab_1]{1 and 2} contain descriptive information on the variables. Table \hyperref[tab_0]{1} gives a summary of the descriptive statistics of the variables. Table2 presents the correlation matrix of the variables, showing the existence of strong correlations. By observing the correlation matrix, we notice that the endogenous variable LBO investment is highly correlated with the explanatory variables divestments. We note the existence of strong correlations (more than 50\% coefficient) between LBO investment and divestment IPO and divestment write-off.   
\section[{a) Macroeconomic determinants of LBO fundraising}]{a) Macroeconomic determinants of LBO fundraising}\par
We will estimate the variable LBO investments in two steps, so we propose 12 models. First, the six models used to determine the effect of macroeconomic variables, divestment variables and the "RD" variable on LBO investment (Table \hyperref[tab_2]{3}). Concerning the measure of institutional quality, we introduce the two variables regulation and corruption in models (6) (12) (Table \hyperref[tab_3]{4}).  
\section[{C}]{C}\par
The Impact of the Macroeconomic and Institutional Environment on LBO Fundraising We can see that both GDP growth and market capitalization variables display insignificant coefficients, whatever we retain the fixed or random effects model. This is adequate for \hyperref[b13]{Jeng and Wells (2000)} and Groh et al. (  {\ref 2008}), but contradictory with the most previous studies  {\ref (Gompers and Lerner, 1998;}\hyperref[b6]{Felix et al., 2007;}\hyperref[b4]{Cherif Gazdar and 2009)}. We can therefore conclude that the increases in market capitalization does not correspond to the increase in LBO investments, that is to say we cannot mention market capitalization as one of the most important financial market factors influencing the private equity market.\par
In the majority of cases, the variable interest rate was negative and statistically significant at the 10\% and 20\%. The study of \hyperref[b12]{Jagwani (2000)} found the same result. This is adequate to macroeconomic theory suggests a negative relationship between the interest rate and the investment of private equity. If interest rates rise, the relative attractiveness of investment in private equity funds will probably deteriorate. However, this result does not support the conclusions of other previous studies, indicate the positive effect of this variable on this type of investment (Gompers and Lerner (1998) and \hyperref[b21]{Romain and La Potterie (2004)}.\par
According with our expectations, the UNEMPL rate has a negative and significant impact on investment in LBO in all estimated models. This result corroborates those recently obtained by \hyperref[b4]{Cherif and Gazdar (2009)} and other studies \hyperref[b13]{(Jeng and Wells (2000)},  {\ref Marti and Balboa (2001)}, Romain and La Potterie (2004)).\par
Finally, our results confirm the conclusions proposed by Lerner et al. (2008) that affirm the positive relationship between the expenditures in research and development and LBOs. However, this variable cannot further explain our exogenous variable. It shows insignificant coefficients and the only time this variable indicates a statistically significant coefficient it is negative (-0.1458) (when introducing institutional variables). 
\section[{b) The institutional determinants of LBO fundraising}]{b) The institutional determinants of LBO fundraising}\par
In addition to macroeconomic factors, the institutional environment affects LBO investments. This involves emphasizing the influence of some institutional qualities.\par
To explain this form of investment, we have thus conducted regressions on all six models estimated previously by adding two variables regulation and CORRP in our regression. The estimation results summarized in the model \hyperref[b6]{(7)} to \hyperref[b11]{(12)} in Table4. We can deduce that the variable CORRP has no effect on investment in LBO that is contradictory to the results found by \hyperref[b4]{Cherif and Gazdar (2009)}.\par
Following the recommendations of \hyperref[b4]{Cherif and Gazdar (2009)} who propose that the institutional environment plays an important role in determining European Private Equity investments, we can say that the regulation may have a positive effect on LBO investments. 
\section[{c) The divestments}]{c) The divestments}\par
The divestment phase constitutes the end of buyout. Academic literature mentions mostly three rote of exit: IPO, trade sale and liquidation of the asset \hyperref[b16]{Kaplan and Stromberg (2009)}. This result is consistent with the recommendations of \hyperref[b7]{Giot and Schwienbacher (2007)}. IPO is widely considered as the most profitable exit route from private equity investments. The models indicate that the variable divestment by IPO has a significant positive impact (at 1\% level) on the supply of this type of investment  {\ref (Gompers and Lerner, 1998;}\hyperref[b21]{Romain et al. 2004;}\hyperref[b6]{Felix et al. 2007)} Therefore, IPO or Divestments by trade sale remain one of the strongest determinants of equity financing. However, this result does not support other previous who have argue that all three variables are not statistically significant determinant of LBO fundraising  {\ref (Marti and Balboa, 2001;}\hyperref[b6]{Felix et al., 2007;}\hyperref[b4]{and Cherif Gazdar, 2009)}. 
\section[{V. Conclusion}]{V. Conclusion}\par
Private equity funds play a major role in the economy. It represents a fundamental support of the unlisted company throughout its existence. It directly contributes to the creation of enterprises, promotion of innovation and new technologies, growth, employment and renewal of the economic base. The presence of strategic role of private equity in the development of the global economy gives it a major character and gives it a special interest in supporting its expansion and essentially its growth. Then it is important to identify and understand the determinants of PE investment offer in an economy.\par
In this research, we proposed to study the characteristics of private equity and specifically LBO transactions. In other words the determinants of the supply of this type of investment. Our empirical application, including a panel of 19 European countries for the period 2001 to 2010.\par
About the financial markets, we found statistically significant results, which show that IPOs mentioned as one of the most important factors that positively influence the LBO investment. Among the country-specific factors, country GDP growth does not show any significant impact. However, other determining variables of this investment such as the interest rate and the unemployment rate negatively affect the growth of LBO investments.\par
Finally, we have shown the relevance of the institutional quality as a determinant of the European funds raised. In contrast to financial theory, coefficients of institutional variables (corruption) through our model regressions are not significant.\begin{figure}[htbp]
\noindent\textbf{1}\includegraphics[]{image-2.png}
\caption{\label{fig_0}Figure 1 :}\end{figure}
 \begin{figure}[htbp]
\noindent\textbf{2}\includegraphics[]{image-3.png}
\caption{\label{fig_1}Figure 2 :}\end{figure}
 \begin{figure}[htbp]
\noindent\textbf{}\includegraphics[]{image-4.png}
\caption{\label{fig_2}}\end{figure}
 \begin{figure}[htbp]
\noindent\textbf{162016}\includegraphics[]{image-5.png}
\caption{\label{fig_3}© 20 16 ) 2016 C}\end{figure}
 \begin{figure}[htbp]
\noindent\textbf{1} \par 
\begin{longtable}{P{0.0709741550695825\textwidth}P{0.5137176938369781\textwidth}P{0.011829025844930417\textwidth}P{0.030417495029821072\textwidth}P{0.0625248508946322\textwidth}P{0.06421471172962226\textwidth}P{0.045626242544731604\textwidth}P{0.050695825049701784\textwidth}}
Variables\tabcellsep \multicolumn{2}{l}{Description}\tabcellsep OBS\tabcellsep MEAN\tabcellsep STD.DV\tabcellsep MIN\tabcellsep MAX\\
Invest LB\tabcellsep \multicolumn{2}{l}{amounts of investment}\tabcellsep \tabcellsep \tabcellsep \tabcellsep \\
\tabcellsep \multicolumn{2}{l}{in the LBO operation}\tabcellsep 184\tabcellsep .00086\tabcellsep .002066\tabcellsep 0\tabcellsep .01552\\
\tabcellsep \multicolumn{2}{l}{(relative to the total}\tabcellsep \tabcellsep \tabcellsep \tabcellsep \\
\tabcellsep \multicolumn{2}{l}{purchase price)}\tabcellsep \tabcellsep \tabcellsep \tabcellsep \\
Growth\tabcellsep \multicolumn{2}{l}{the annual GDP growth rate in local currency}\tabcellsep 190\tabcellsep .02982\tabcellsep .019075\tabcellsep -.01119\tabcellsep .11681\\
MCAP\tabcellsep \multicolumn{2}{l}{The value of listed}\tabcellsep \tabcellsep \tabcellsep \tabcellsep \\
\tabcellsep domestic\tabcellsep company\tabcellsep \tabcellsep \tabcellsep \tabcellsep \\
\tabcellsep \multicolumn{2}{l}{shares country's major stock on each}\tabcellsep 174\tabcellsep .041863\tabcellsep .03194\tabcellsep -.05977\tabcellsep .14374\\
\tabcellsep \multicolumn{2}{l}{exchanges as a percent}\tabcellsep \tabcellsep \tabcellsep \tabcellsep \\
\tabcellsep of GDP\tabcellsep \tabcellsep \tabcellsep \tabcellsep \tabcellsep \\
Interest\tabcellsep \multicolumn{2}{l}{the annual real interest rate}\tabcellsep 151\tabcellsep .077006\tabcellsep .03851\tabcellsep .025\tabcellsep .206\\
UNEMPL\tabcellsep \multicolumn{2}{l}{total unemployment in}\tabcellsep \tabcellsep \tabcellsep \tabcellsep \\
\tabcellsep \multicolumn{2}{l}{percentage of total labor}\tabcellsep 152\tabcellsep .077443\tabcellsep .06095\tabcellsep .0772\tabcellsep 3.220\\
\tabcellsep force\tabcellsep \tabcellsep \tabcellsep \tabcellsep \tabcellsep \end{longtable} \par
 
\caption{\label{tab_0}Table 1 :}\end{figure}
 \begin{figure}[htbp]
\noindent\textbf{2} \par 
\begin{longtable}{}
\end{longtable} \par
 
\caption{\label{tab_1}Table 2 :}\end{figure}
 \begin{figure}[htbp]
\noindent\textbf{3} \par 
\begin{longtable}{P{0.85\textwidth}}
determinant of LBO fundraising\end{longtable} \par
 
\caption{\label{tab_2}Table 3 :}\end{figure}
 \begin{figure}[htbp]
\noindent\textbf{4} \par 
\begin{longtable}{P{0.85\textwidth}}
* Significant at 1\%, ** significant at 5\% and*** significant at 10\%.\end{longtable} \par
 
\caption{\label{tab_3}Table 4 :}\end{figure}
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\end{document}
