State Owned Firms: Private Debt, Cost Revelation and Welfare
AbstractIn this paper we study the role of private debt financing in disciplining a state owned firm operating for a government that incurs a cost of public financing. We show that debt contracts allow the government to avoid socially costly subsidies by letting unprofitable state- owned firms default. Debt is never used when the firm and government share the same information about the firm. By contrast, when the state-owned firm has private information, the government has an incentive to use debt to reduce the firm's information rents. We identify the conditions under which a positive debt level benefits governments. They depend on the cost of public funds, the interbank funding rate, the share of foreign investors, the level and uncertainty of the firm's cost.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Center for Research in Economic Analysis, University of Luxembourg in its series CREA Discussion Paper Series with number 12-10.
Date of creation: 2012
Date of revision:
Contact details of provider:
Postal: 162a avenue de la Faïencerie, L-1511 Luxembourg
Phone: (+352) 46 66 44
Fax: (+352) 46 66 44 ext 633
Web page: http://wwwen.uni.lu/research/fdef/crea
More information through EDIRC
State-owned firms; privatization; debt; information asymmetry;
Other versions of this item:
- PICARD, Pierre & RUSLI, Ridwan D., 2012. "State owned firms: private debt, cost revelation and welfare," CORE Discussion Papers 2012047, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
- G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-12 (All new papers)
- NEP-BEC-2013-01-12 (Business Economics)
- NEP-CTA-2013-01-12 (Contract Theory & Applications)
- NEP-REG-2013-01-12 (Regulation)
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.:
- Auriol, Emmanuelle & Picard, Pierre, 2008.
"Government Outsourcing: Public Contracting with Private Monopoly,"
IDEI Working Papers
382, Institut d'Économie Industrielle (IDEI), Toulouse.
- Emmanuelle Auriol & Pierre M. Picard, 2009. "Government Outsourcing: Public Contracting with Private Monopoly," Economic Journal, Royal Economic Society, vol. 119(540), pages 1464-1493, October.
- AURIOL, Emmanuelle & PICARD, Pierre M., . "Government outsourcing: public contracting with private monopoly," CORE Discussion Papers RP -2174, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
- Auriol, Emmanuelle & Picard, Pierre M, 2006. "Government Outsourcing: Public Contracting with Private Monopoly," CEPR Discussion Papers 5643, C.E.P.R. Discussion Papers.
- Emmanuelle Auriol & Pierre M. Picard, 2006. "Government Outsourcing: Public Contracting with Private Monopoly," CESifo Working Paper Series 1733, CESifo Group Munich.
- Yossef Spiegel & Daniel F. Spulber, 1994. "The Capital Structure of a Regulated Firm," RAND Journal of Economics, The RAND Corporation, vol. 25(3), pages 424-440, Autumn.
- J. Kornai, 2000.
"Ten Years After "The Road to a Free Economy": The Author's Self-evaluation,"
N.P. Redaktsiya zhurnala "Voprosy Economiki", vol. 12.
- János Kornai, 2001. "Ten years after the road to a free economy: the author's self-evaluation," Politická ekonomie, University of Economics, Prague, vol. 2001(5).
- Mathias Dewatripont & Jean Tirole, 1994.
"A theory of debt and equity: diversity of securities and manager-shareholder congruence,"
ULB Institutional Repository
2013/9593, ULB -- Universite Libre de Bruxelles.
- Dewatripont, Mathias & Tirole, Jean, 1994. "A Theory of Debt and Equity: Diversity of Securities and Manager-Shareholder Congruence," The Quarterly Journal of Economics, MIT Press, vol. 109(4), pages 1027-54, November.
- Andrei Shleifer, 1998.
"State versus Private Ownership,"
Journal of Economic Perspectives,
American Economic Association, vol. 12(4), pages 133-150, Fall.
- Andrei Shleifer, 1998. "State Versus Private Ownership," NBER Working Papers 6665, National Bureau of Economic Research, Inc.
- Andrei Shleifer, 1998. "State Versus Private Ownership," Harvard Institute of Economic Research Working Papers 1841, Harvard - Institute of Economic Research.
- David E. M. Sappington & Joseph E. Stiglitz, 1988.
"Privatization, Information and Incentives,"
NBER Working Papers
2196, National Bureau of Economic Research, Inc.
- Povel, Paul & Raith, Michael, 2004. "Financial constraints and product market competition: ex ante vs. ex post incentives," International Journal of Industrial Organization, Elsevier, vol. 22(7), pages 917-949, September.
- Federico Weinschelbaum & Leandro Arozamena, 2006.
"A Note on the Suboptimality of Right-of-First-Refusal Clauses,"
92, Universidad de San Andres, Departamento de Economia, revised Jul 2006.
- Leandro Arozamena & Federico Weinschelbaum, 2006. "A note on the suboptimality of right-of-first-refusal clauses," Economics Bulletin, AccessEcon, vol. 4(24), pages 1-5.
- Roberto Burguet & Martin Perry, 2002.
"Bribery and Favoritism by Auctioneers in Sealed Bid Auctions,"
Departmental Working Papers
200205, Rutgers University, Department of Economics.
- Burguet Roberto & Perry Martin K, 2007. "Bribery and Favoritism by Auctioneers in Sealed-Bid Auctions," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 7(1), pages 1-27, June.
- Roberto Burguet & Martin Perry, 2000. "Bribery and Favoritism by Auctioneers in Sealed Bid Auctions," Econometric Society World Congress 2000 Contributed Papers 1827, Econometric Society.
- Christopher James & David C. Smith, 2000. "Are Banks Still Special? New Evidence on Their Role in the Corporate Capital-Raising Process," Journal of Applied Corporate Finance, Morgan Stanley, vol. 13(1), pages 52-63.
- Federico Weinschelbaum & Leandro Arozamena, 2005.
"The Effect of Corruption on Bidding Behavior in First-Price Auctions,"
82, Universidad de San Andres, Departamento de Economia, revised Aug 2005.
- Arozamena, Leandro & Weinschelbaum, Federico, 2009. "The effect of corruption on bidding behavior in first-price auctions," European Economic Review, Elsevier, vol. 53(6), pages 645-657, August.
- Federico Weinschelbaum & Leandro Arozamena, 2004. "The Effect of Corruption on Bidding Behavior in First-Price Auctions," Econometric Society 2004 Latin American Meetings 180, Econometric Society.
- Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
- Kornai, Janos, 1993. "The Evolution of Financial Discipline under the Postsocialist System," Kyklos, Wiley Blackwell, vol. 46(3), pages 315-36.
- Bhattacharya Sudipto & Thakor Anjan V., 1993. "Contemporary Banking Theory," Journal of Financial Intermediation, Elsevier, vol. 3(1), pages 2-50, October.
- Auriol, Emmanuelle & Blanc, Aymeric, 2008.
"Capture and Corruption in Public Utilities: the Cases of Water and Electricity in Sub-Saharan Africa,"
IDEI Working Papers
505, Institut d'Économie Industrielle (IDEI), Toulouse.
- Auriol, Emmanuelle & Blanc, Aymeric, 2009. "Capture and corruption in public utilities: The cases of water and electricity in Sub-Saharan Africa," Utilities Policy, Elsevier, vol. 17(2), pages 203-216, June.
- Yener Altunbas & Alper Kara & David Marques-Ibanez, 2010.
"Large debt financing: syndicated loans versus corporate bonds,"
The European Journal of Finance,
Taylor & Francis Journals, vol. 16(5), pages 437-458.
- Altunbas, Yener & Kara, Alper & Marqués-Ibáñez, David, 2009. "Large debt financing: syndicated loans versus corporate bonds," Working Paper Series 1028, European Central Bank.
- van Damme, Eric, 1994. "Banking: A Survey of Recent Microeconomic Theory," Oxford Review of Economic Policy, Oxford University Press, vol. 10(4), pages 14-33, Winter.
- Antonio Estache & V. Foster & Q. Wodon, 2002. "Accounting for Poverty in Infrastructure Reform: Learning from Latin America's Experience," ULB Institutional Repository 2013/44108, ULB -- Universite Libre de Bruxelles.
- Gale, Douglas & Hellwig, Martin, 1985. "Incentive-Compatible Debt Contracts: The One-Period Problem," Review of Economic Studies, Wiley Blackwell, vol. 52(4), pages 647-63, October.
- repec:ebl:ecbull:v:4:y:2006:i:24:p:1-5 is not listed on IDEAS
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Elisa Ferreira).
If references are entirely missing, you can add them using this form.