SELECTED MACROECONOMIC FACTORS AND INVESTMENT DECISION MAKING IN KENYA’S PRIVATE EQUITY AND VENTURE CAPITAL INDUSTRY

Abstract

Using a combination of primary data and secondary data, the study investigated the extent to which private equity and venture capital professionals in Kenya consider selected macroeconomic variables in their investment decision making (IDM) and the impact of those factors on the private equity market in terms of the number of investments (deals/deal volume) made over time. A descriptive research design was used to collect and analyze primary sample data. This was used to draw insights into the broad sentiments of industry professionals regarding the effect of the select macroeconomic factors on the PE/VC market, and their application of these factors when making investment decisions. Subsequently, a correlational research design was employed using secondary, monthly time series data concerning deal volume, as the dependent variable, and inflation rate, the U.S. Dollar exchange rate, commercial bank lending rate, long-term risk-free rate, and domestic and international monetary policy rates, as the independent variables. The data comprised 120 observations over a ten-year period beginning January 2014 to December 2023. The Vector Error Correction Model (VECM) and Impulse Response Function were used to evaluate the short and long-run effects of the selected independent variables on deal volume.