"Labor Regulations and European Industrial Specialization: Evidence from Private Equity Investments"
European nations empirically substitute between employment protection regulations and labor market expenditures like unemployment insurance benefits in the provision of labor market insurance to workers. While perhaps substitutes from a worker's perspective, employment regulations more directly tax firms making frequent labor force adjustments. These labor adjustments are especially important for the portfolio companies of both venture capital and buy-out investors. European nations providing worker insurance through labor market expenditures developed stronger domestic private equity markets over the 1990-2004 period than those nations favoring employment protection. These patterns are further evident in US-sourced private equity investments into Europe. Moreover, tests for industry specialization suggest that countries with more flexible labor markets tend to specialize in sectors characterized by high labor volatility. These results are relevant to the literature examining the impact of labor market regulations on entrepreneurship and productivity growth due to reallocation across firms and sectors.
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December 1, 2006
Stimulates discussion of entrepreneurship in emerging economies, especially for entrepreneurs returning to their home countries to start businesses with global technologies and partners. Focuses on the partnership tensions between global firms and local family-dominated conglomerates. Addresses new venture financing in an asset-intensive business through the assembly of strategic contracts. More broadly, highlights the opportunities and challenges for returnee entrepreneurs. Designed for entrepreneurial and international business courses.
December 1, 2006
August 31, 2006
Venture capital investment is a significant factor in explaining the entrepreneurial and innovative successes of the U.S. over the past three decades. VC investment in most European regions, however, has been much slower to develop. This paper identifies the institutional factors and government policies that have inhibited this funding historically, discusses recent advances made in several European regions to attract domestic and foreign investors, and documents current investment levels.