Ownership and Performance in the Market for Corporate Control: The Role of State-Owned Enterprises

Despite a wave of privatizations in the past three decades, several governments own major corporations in industries such as energy, mining, telecommunications, transport, banking, manufacturing, in emerging economies as well as in some developed ones. Contemporary state-owned enterprises (SOEs) are increasingly active players in the international and domestic markets for corporate control, through mergers and acquisitions. This paper contributes to a new strand of literature on SOEs form the angle of the market for corporate control. Do the SOEs, behave as their private counterparts when purchasing other firms? The standard prediction of the “inefficient management hypothesis” is that firms that perform well will buy firms of inferior managerial quality (Manne, 1965). An alternative prediction is offered more recently by Rhodes-Kropf and Robinson (2008), who suggest that for US listed companies “like buys like”. To test both the alternative views and the research question on how public ownership has an impact on the market for corporate control, we build a new dataset from Zephyr and Orbis, two databases developed by the Bureau Van Dijk since early 2000s. Our sample is composed by 25,332 deals worldwide, of which around 10% are performed by a SOE acquirer. By focusing on the difference of the return on sales between the acquirer and the target firm, and controlling for different factors, we find that the Rhodes-Kropf and Robinson (2008) prediction is more likely for listed companies, but not for the others; SOEs tend to buy “lower” relative to their own performance than private companies do, while their behavior converges towards the private benchmark when the SOEs are listed. We conclude that mergers and acquisitions by SOEs in the years we consider are not as much at variance with the “inefficient market hypothesis” as private firms.