Deal or No Deal? Modelling the Impact of Brexit Uncertainty on UK Private Equity Activity

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Given uncertainty in policy, particularly around Brexit, how do private equity (PE) firms investing in the UK behave? Analysing their response is vital for understanding the impact on investment per se and designing policy that limits uncertainty. Building on the recent work of Mike Wright and co-authors, we explore the effect of uncertainty measures on UK PE activity and the channels that transmit uncertainty to the PE market. After developing hypotheses that link the ‘PE activity and uncertainty’ relation via a real options, interim risk or moral hazard channel, we employ a novel dataset on PE targets and non-targets over the 2010–2019 period. We find that uncertainty, especially new measures closely aligned to Brexit, have negatively affected PE activity in the UK. Moreover, the transmission of such uncertainty occurs primarily through the real options channel and through greater uncertainty arising from prolonged interim periods of PE deals (i.e. the interim risk channel). Our results imply that the present and ongoing uncertainty in Brexit policy will continue to depress PE activity and by extension, investment and growth in the UK. Policymakers are urged to resolve such uncertainties.
Original languageEnglish
JournalBritish Journal of Management
Issue number1
Pages (from-to)46-68
Number of pages23
Publication statusPublished - 01.01.2022

Bibliographical note

Publisher Copyright:
© 2021 The Authors. British Journal of Management published by John Wiley & Sons Ltd on behalf of British Academy of Management

    Research areas

  • Management studies - Foreign direct investment, Financial stability, Sovereign yields, Euro area, International regulation
  • Economics