Private Equity and Capital Market

Private Equity and Capital Market

Austrian Private Equity Research Proposal

In the current global financial crisis, it is clear that equity can not come directly from one major source, but that it must be spread out in order to provide greater security in times of crisis. Yet, this is unfortunately not the case in Austria, where there is an extremely underdeveloped private equity market. How can Austria's private equity market then be increased?

The Austrian Private Equity is underdeveloped. Given the importance of small and medium sized enterprises within the Austrian economy, it is crucial to have a well functioning capital market that gives businesses choices in terms of raising capital and funding growth. The financial crisis has clearly demonstrated what happens when the market is too dependent on one source of capital. When banks are held too highly within the capital resource market, there is potential for major financial crisis when they become an unstable source for acquiring capital. Thus, private equity should be a natural alternative as a capital provider for enterprises looking for ways to develop their business. Yet, unfortunately in Austria today, this is not the case.

Purpose of Study

To explore the driving forces behind Austrian Private Equity, as well as how it can be developed further. The study will aim to try and understand more clearly what the drivers of private equity in Austria are, and what can potentially be done to improve the environment and development of the private equity industry in the region. Additionally, the study will examine the role of small and medium sized enterprises (SME) and how they can benefit from an increased availability of private equity within the Austrian capital marketplace.

Literature Review

Several empirical studies have shown that Austria is ranked low on capital market development. One study in particular, conducted y the Vienna stock exchange confirmed the low rank of Austrian Private Equity in comparison to the European benchmark. Those within Austria tend to claim that this is based on cultural phenomenon. The private equity community within the country, as well as external Capital market experts, suggest that cultural barriers tend to be the main culprits in terms of increasing the rank of Austria's Private Equity to a standard more comparable with the rest of the European Union. Small to medium sized private enterprises tend to be the largest proponents of this idea that Austria's innate culture is in some way responsible for the low level of private equity within the country.

Hypothesis

Within the context of the current study, there are several proposed hypotheses. First, the study will aim to prove that the private equity market in Austria is underdeveloped. Second, this is caused primarily a cultural phenomenon based on attitudes towards the capital market, especially private equity. Additionally, it looks at how the SME segment is important within the Austrian economy and that a boost in private equity would then be beneficial to this market.

Methods and Procedures

The context of the study will be broken into two main parts. The first will be an empirical study of the capital market development in Austria. This will provide exploration of the key players and their role in the Austrian capital market with references to International comparison and benchmark. This will include a thorough literature review regarding the SME structure in Austria, including information on what the typical ownership structure is.

The second part will be a qualitative study of a select group of CEO/CFO and company owners. It will incorporate a minimum of at least twenty interviews, with the individuals selected in order to secure opinions from professionals and major industry players. The survey sample will include representatives from large, medium, and small company representatives. Within the survey will be questions regarding economic activity and outlook, their individual view of the capital market and its influence on their business, investor protection and corporate governance, human and social environment, how they traditionally finance business, impact of the current recession, their individual view and understanding of private equity, potential barriers to private equity, and what could be done to increase availability of private equity within the region. These can then be compiled to provide a comprehensive view of the current situation as well as to provide potential strategies for increasing private equity within Austria.