Factors Influencing Capital Deployment in the Private Equity Industry in Emerging Markets: The Case of Morocco

Abstract

Private equity has become an increasingly important source of financing for productive investment in emerging economies, where access to long-term capital remains limited. While the literature has extensively examined the determinants of private equity activity in developed markets, limited attention has been paid to the drivers of effective capital deployment in emerging contexts. This study investigates the determinants of private equity capital deployment in Morocco over the period 2005–2021, focusing on financial center size, infrastructure quality, fiscal environment, and financial development.

Using Partial Least Squares (PLS) regression combined with jackknife cross-validation to address small sample size and multicollinearity issues, the results show that financial center size (VIP = 1.178) and infrastructure quality (VIP = 1.139) have a positive and statistically significant effect on capital deployment, while taxation (VIP = 1.030) exerts a negative effect. Financial development does not emerge as a significant determinant (VIP = 0.502). The model demonstrates satisfactory explanatory power, accounting for 54.5% of the variance in capital deployment (R²Ycum = 0.545), along with strong predictive relevance (Q²cum = 0.486).

Beyond the empirical findings, this study shows, in line with Pagano (1993), that in emerging economies the reduction of intermediation costs does not depend solely on financial system development. It also relies on factors such as the concentration of financial actors and infrastructure quality. These results suggest that capital allocation is strongly influenced by agglomeration effects and structural constraints in such contexts.

JEL Classification: G15, G20, G24, F43, E22, E44.

Paper type: Empirical Research