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Determinants of Privatization Prices

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Author Info
Lopez-de-Silanes, Florencio

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Abstract

Generating government revenue is a common objective in privatization. This paper asks what determines privatization prices using firm-level data for all 236 Mexican companies privatized between 1983 and 1992. There are three main reasons why net prices--auction prices net of the cost of prior restructuring measures--are low, averaging 54 cents per dollar of assets. First, privatization prices are very sensitive to the level of competition in the auction and restrictions often limited participation. Second, the privatization process took too long, and lengthier privatizations are associated with lower premiums. Third, firm prior restructuring measures absorbed an average of 33 percent of the auction price. Most restructuring measures do not increase price and delay privatization further. Net prices would have increased by 71 cents per dollar of assets if the government had emphasized speed, succeeding in divesting assets in one year less than the average, and firing the CEO were the only restructuring steps taken. Copyright 1997, the President and Fellows of Harvard College and the Massachusetts Institute of Technology.

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Publisher Info
Article provided by MIT Press in its journal Quarterly Journal of Economics.

Volume (Year): 112 (1997)
Issue (Month): 4 (November)
Pages: 965-1025
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Handle: RePEc:tpr:qjecon:v:112:y:1997:i:4:p:965-1025

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References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
  1. Vining, Aidan R & Boardman, Anthony E, 1992. " Ownership versus Competition: Efficiency in Public Enterprise," Public Choice, Springer, vol. 73(2), pages 205-39, March.
  2. Paul R. Milgrom, 1985. "Auction Theory," Cowles Foundation Discussion Papers 779, Cowles Foundation, Yale University. [Downloadable!]
  3. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W, 1996. "A Theory of Privatisation," Economic Journal, Royal Economic Society, vol. 106(435), pages 309-19, March. [Downloadable!] (restricted)
  4. Alberto Chong & Florencio Lopez-de-Silanes, 2004. "Privatization in Mexico," RES Working Papers 4373, Inter-American Development Bank, Research Department. [Downloadable!]
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  5. John Vickers & George Yarrow, 1988. "Privatization: An Economic Analysis," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262720116.
  6. David E. M. Sappington & Joseph E. Stiglitz, 1988. "Privatization, Information and Incentives," NBER Working Papers 2196, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  7. Megginson, William L & Nash, Robert C & van Randenborgh, Matthias, 1994. " The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis," Journal of Finance, American Finance Association, vol. 49(2), pages 403-52, June. [Downloadable!] (restricted)
  8. Jean Tirole, 1991. "Privatization in Eastern Europe: Incentives and the Economics of Transition," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 221-268 National Bureau of Economic Research, Inc. [Downloadable!]
  9. Hausman, Jerry A., 1983. "Specification and estimation of simultaneous equation models," Handbook of Econometrics, in: Z. Griliches† & M. D. Intriligator (ed.), Handbook of Econometrics, edition 1, volume 1, chapter 7, pages 391-448 Elsevier. [Downloadable!] (restricted)
  10. Douglas Staiger & James H. Stock, 1994. "Instrumental Variables Regression with Weak Instruments," NBER Technical Working Papers 0151, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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This page was last updated on 2009-11-16.

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