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Reluctant privatization

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Author Info
Bortolotti, Bernardo
Faccio, Mara

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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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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
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Handle: RePEc:hit:hitcei:2006-5

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Related research
Keywords: Privatization; Corporate Governance;

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Find related papers by JEL classification:
L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Boundaries of Public and Private Enterprise; Privatization; Contracting Out
D72 - Microeconomics - - Analysis of Collective Decision-Making - - - Models of Political Processes: Rent-seeking, Elections, Legislatures, and Voting Behavior
G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
H6 - Public Economics - - National Budget, Deficit, and Debt
K22 - Law and Economics - - Regulation and Business Law - - - Corporation and Securities Law

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Full references

Cited by:
(explanations, 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. Gennaioli, Nicola & Rossi, Stefano, 2008. "Judicial Discretion in Corporate Bankruptcy," CEI Working Paper Series 2008-5, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
  2. Gennaioli, Nicola & Rossi, Stefano, 2008. "Optimal Resolutions of Financial Distress by Contract," CEI Working Paper Series 2008-6, Center for Economic Institutions, Institute of Economic Research, Hitotsubashi University. [Downloadable!]
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