Private Equity Financing and Financial Performance: A Critical Review of the Literature

Abstract

Private equity is fast becoming an alternative source of capital for firms with a high growth potential as compared to the main stream sources of capital. The pertinent question here is; does private equity financing translate to better performance for firms that receive private equity? This paper examines the extent to which private equity funds affect the performance of firms in the Fintech sector in Kenya using a conceptual approach. The agency theory and diffusion of innovations theory underpin the direct and indirect relationships examined in this paper while also reviewing empirical literature. There are mixed findings on the link between private equity and financial performance whereby on one hand, private equity-backed firms have better financial performance than non-private equity-backed firms while other studies support the converse. Nevertheless, firm factors have generally been found to have a moderating influence on the link between private equity and financial performance in firms.

Key words: Private equity, Venture capital, Growth, Fintech firms, Financial performance.