Entry of investment funds in the capital of companies in Morocco: what effect on their performance?

Abstract

Companies face particularly significant challenges in managing the dynamics of growth and attempting to overcome specific strategic obstacles. Part of the challenge is accessing and assembling a variety of critical resources to fuel growth and put the company on a path to expansion. Resource needs often come in the form of financial capital. When internal funding and the founder's personal wealth are not sufficient to cover the financing needed for further growth, external investors, such as private equity professionals, can provide critical resources in the form of equity. This results in a significant change in the ownership structure.  The arrival of new shareholders raises many questions, as investors can have a significant influence on the company's performance. The private equity industry is characterized by the function of identifying companies with high performance potential and evolving to provide adequate sources of capital and experience necessary for exponential growth. This paper seeks to analyze the effects of private equity financing and its persistence over time as a function of the percentage of equity ownership. We focus on the two years before and two years after the entry of the investment fund in the capital of firms in Morocco. We used two measures that relate to the financial policies of the firms: financial profitability (ROE) and sales growth. This study reveals that private equity financing has a positive impact on firms' sales. This impact is most significant after the second year of the new investor's entry. However, we find that the significant participation of the private equity investor does not impact the level of sales and has a small effect on the financial performance of the firms.

JEL Classification : G24, G32, L25

Paper type : Empirical research.