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Reluctant privatization

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  • Bortolotti, Bernardo
  • Faccio, Mara

Abstract

We study the evolution of the control structure for a large sample of privatized firms in OECD countries and find evidence broadly consistent with the concept of "reluctant privatization", defined as the transfer of ownership rights in State-owned enterprises without a corresponding transfer of control rights. Indeed, as of 2000, governments are the largest shareholder or use special control powers to retain voting control of 62.4% of privatized firms. However, contrary to accepted theory, greater government control over privatized firms does not negatively affect market valuation. In fact, government stakes are positively and significantly related to peer-adjusted market-to-book ratios. Results are not driven by the choice of the benchmark, reverse causality or by agency costs associated with private ownership. Rather, it appears that the relationship documented reflects more frequent financial aid (bailouts) accruing to privatized firms that remain under government control.

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Bibliographic Info

Paper provided by Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University in its series CEI Working Paper Series with number 2006-5.

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Length: 40 p.
Date of creation: Sep 2006
Date of revision:
Handle: RePEc:hit:hitcei:2006-5

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Keywords: Privatization; Corporate Governance;

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References

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  1. Bernardo Bortolotti & Marcella Fantini & Domenico Siniscalco, 2001. "Privatisation Around the World: New Evidence from Panel Data," CESifo Working Paper Series 600, CESifo Group Munich.
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Citations

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Cited by:
  1. Bernardo Bortolotti, 2005. "Political Institutions and Privatisation Policy," CESifo DICE Report, Ifo Institute for Economic Research at the University of Munich, vol. 3(1), pages 12-18, 04.
  2. Omran, Mohammed, 2009. "Post-privatization corporate governance and firm performance: The role of private ownership concentration, identity and board composition," Journal of Comparative Economics, Elsevier, vol. 37(4), pages 658-673, December.
  3. Jan Hanousek & Evžen Kočenda, 2011. "Extent of the Integrated State Ownership and Effect of the State Control on Performance of Czech Firms," Politická ekonomie, University of Economics, Prague, vol. 2011(1), pages 82-104.
  4. Evžen Kočenda & Jan Hanousek, 2012. "State ownership and control in the Czech Republic," Economic Change and Restructuring, Springer, vol. 45(3), pages 157-191, August.
  5. Alexander Radygin & Revold Entov, 2014. "The Fundamental Privatization Theorem: Ideology, Evolution, Practice," Working Papers 0087, Gaidar Institute for Economic Policy, revised 2014.
  6. Cabeza-García, Laura & Gómez-Ansón, Silvia, 2011. "Post-privatisation ownership concentration: Determinants and influence on firm efficiency," Journal of Comparative Economics, Elsevier, vol. 39(3), pages 412-430, September.
  7. Chernykh, Lucy, 2008. "Ultimate ownership and control in Russia," Journal of Financial Economics, Elsevier, vol. 88(1), pages 169-192, April.

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