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Privatization, corporate control and regulatory reform: the case of Telefonica

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  • Bel, Germà
  • Trillas, Francesc

Abstract

This study analyzes the interaction of agency problems in public policy and of agency problems inside the firm: it investigates the case of a large privatized firm subject to many policy constraints. The last steps of Telefonica's privatization were designed to promote a dispersed ownership and give managers a high level of discretion in running the company. This effectively created an agency problem inside the firm. There were no powerful shareholders to constrain the managers, and the threat of a takeover was not a credible one, since the government kept a golden share. There is no overall evidence of capture of politicians and regulators by managers in the interest of shareholders, although evidence suggests the existence of collusion between politicians and managers. The authors interpret the political interference with the firm's control (a well-documented phenomenon both in this study and in the cross-country literature on privatization; e.g. political ends in privatization, influence in appointments, golden shares) as the most visible part of such collusion. Liberalization and multi-level regulation will likely make any type of collusion or capture more difficult in the future.

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Bibliographic Info

Article provided by Elsevier in its journal Telecommunications Policy.

Volume (Year): 29 (2005)
Issue (Month): 1 (February)
Pages: 25-51

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Handle: RePEc:eee:telpol:v:29:y:2005:i:1:p:25-51

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Keywords: Corporate governance Privatization Regulation Deregulation Capture;

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References

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  1. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  2. Trillas, Francesc, 0. "Mergers, acquisitions and control of telecommunications firms in Europe," Telecommunications Policy, Elsevier, vol. 26(5-6), pages 269-286, June.
  3. Robison, H David & Davidson, Wallace N, III & Glascock, John L, 1995. "The Formation of Public Utility Holding Companies and Their Subsequent Diversification Activity," Journal of Regulatory Economics, Springer, vol. 7(2), pages 199-214, March.
  4. Trillas, Francesc, 2001. "The takeover of Enersis: the control of privatized utilities," Utilities Policy, Elsevier, vol. 10(1), pages 25-45, March.
  5. Jones, Steven L. & Megginson, William L. & Nash, Robert C. & Netter, Jeffry M., 1999. "Share issue privatizations as financial means to political and economic ends," Journal of Financial Economics, Elsevier, vol. 53(2), pages 217-253, August.
  6. Antony W. Dnes & Jonathan S. Seaton, 1999. "The Regulation of British Telecom: An Event Study," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(4), pages 610-, December.
  7. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, December.
  8. Bel, Germa, 2003. "Confidence building and politics in privatization: some evidence from Spain," Economics Letters, Elsevier, vol. 78(1), pages 9-16, January.
  9. DeAngelo, Harry & DeAngelo, Linda & Gilson, Stuart C., 1996. "Perceptions and the politics of finance: Junk bonds and the regulatory seizure of First Capital Life," Journal of Financial Economics, Elsevier, vol. 41(3), pages 475-511, July.
  10. Koski, Heli A. & Majumdar, Sumit K., 2002. "Paragons of virtue? Competitor entry and the strategies of incumbents in the U.S. local telecommunications industry," Information Economics and Policy, Elsevier, vol. 14(4), pages 453-480, December.
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  12. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
  13. Joskow, Paul L. & Rose, Nancy L. & Shepard, Andrea., 1993. "Regulatory constraints on executive compensation," Working papers 3550-93., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  14. Germa Bel, 2002. "Privatization: public offerings and political objectives," Applied Economics, Taylor & Francis Journals, vol. 34(11), pages 1421-1432.
  15. Besanko, David & D'Souza, Julia & Thiagarajan, S Ramu, 2001. "The Effect of Wholesale Market Deregulation on Shareholder Wealth in the Electric Power Industry," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 65-88, April.
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Citations

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Cited by:
  1. Alejandro Riaño & Alberto E. Chong, 2006. "Political Environment and Privatization Prices ," IDB Publications 6701, Inter-American Development Bank.
  2. Clifton, Judith & Díaz-Fuentes, Daniel & Comín Comín, Francisco, 2011. "From national monopoly to Multinational Corporation: how regulation shaped the road towards telecommunications internationalization," MPRA Paper 33017, University Library of Munich, Germany.
  3. Alberto Chong & Alejandro Riaño, 2006. "El entorno político y los precios de las privatizaciones," Research Department Publications 4440, Inter-American Development Bank, Research Department.
  4. Loukas Spanos & Demetrios Papoulias, 2005. "Corporate Governance as an instrument of change state owned Corporate Governance as an instrument of change state owned companies: The case of the Hellenic Telecommunications Organization," Finance 0508004, EconWPA.
  5. Germán Horacio Cardona Vélez, 2014. "Análisis del impacto de los cambios del control corporativo sobre el valor de las empresas en América Latina," REVISTA CUADERNOS DE ECONOMÍA, UN - RCE - CID.
  6. Pau Castells & Francesc Trillas, 2008. "Political parties and the economy: Macro convergence, micro partisanship?," Working Papers 2008/1, Institut d'Economia de Barcelona (IEB).
  7. Joan Calzada & Anton Costas, 2013. "“La liberalización de las telecomunicaciones en España: control de la inflación y universalización del servicio”," IREA Working Papers 201310, University of Barcelona, Research Institute of Applied Economics, revised May 2013.
  8. Massón-Guerra, José Luis, 2007. "Evolución de la Eficiencia Productiva de una empresa privatizada: El Caso del Grupo Telefónica de España
    [Productive Efficiency in Telefonica]
    ," MPRA Paper 13463, University Library of Munich, Germany.
  9. Pau Castells & Francesc Trillas, 2013. "The effects of surprise political events on quoted firms: the March 2004 election in Spain," SERIEs, Spanish Economic Association, vol. 4(1), pages 83-112, March.

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