Private equity financing model and an application for Türkiye

The private equity financing model is a mechanism that provides capital to businesses with high growth potential but limited access to conventional financial resources, while offering investors the promise of long-term high returns. This model supports business growth and corporate capacity expansion by providing opportunities such as the development of innovative products, access to new markets and customers and professional management. It also plays a significant role in areas such as entrepreneurship, job creation, and economic growth within the national economy. The main expected effects of private equity financing include improvements in liquidity, capital structure, net profitability and ultimately, the market reflection of these positive developments. It is critical for the market to price the real situation of portfolio companies, avoiding speculative effects to ensure the reliability and sustainability of the system. These expected effects from investments constitute the fundamental questions that this thesis aims to address. In this framework, the status of private equity investments in Turkiye has been examined and changes in the financial ratios of the portfolio companies that received investments were analysed using the Difference-in-Differences methodology, with financial data of companies listed on Borsa Istanbul in the period 2009-2022. Portfolio companies were grouped according to their investment dates and their financial data were compared with a control group and the pre-investment condition. In this regard, an econometric analysis was conducted by using recent approaches of Callaway & Sant'Anna (2021) and Sun & Abraham (2020), which incorporate staggered adoption and heterogeneous effects into the model and results were interpreted. Despite partial positive developments like the ones in liquidity and commercial debt maturities, the results support negative effects on key expectations, such as capital structure transformation and the impact of sales management strategies on net profitability. Therefore, the private equity investments in Turkiye during the specified period achieved the expected effects to a rather limited extent. Another key finding emerged in the market pricing behaviour. The related results indicate that these investments are typically priced based on receiving investment, rather than a thorough analysis of the actual financial situation. In this context, it is emphasized that regulators need to take action to protect especially individual investors from asymmetric information and speculative effects and academic studies and empirical applications, which often serve as early signals, should be increased.