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The welfare effects of private equity transactions are debated controversially. We analyze the impact of expansion financing and buyouts by private equity investors on investment of portfolio firms in the U.K. and France. Unobserved heterogeneity and the endogeneity of private equity transactions financed by venture capitalists are addressed using dynamic panel data techniques. In both countries we find that portfolio firms display higher investment levels and a lower dependence on internal funds after expansion financing. Buyouts financed by venture capitalists are neither associated with a decrease in investment spending nor with an increase in the dependence on internal finance.