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Why Do Governments Sell Privatised Companies Abroad?

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  • Bernardo Bortolotti
  • Marcella Fantini
  • Carlo Scarpa

Abstract

This paper provides an empirical analysis of Governments' decisions to sell privatised companies on both international and domestic markets in a sample of 392 privatisations in 42 countries. Political theories of privatisation find strong support in our analyses: market oriented Governments favour domestic investors in the allocation of shares. Furthermore, the need to penetrate foreign markets and to warrant better legal protection to shareholders also appear as relevant. Significant differences emerge in OECD and non-OECD countries. In wealthy economies stock market liquidity favours cross-listing, while in emerging countries Governments resort to cross-list in order to "import" liquidity and to develop domestic stock markets. Legal institutions also play a different role. In OECD countries, weak shareholder protection induces Governments to cross-list, in order to borrow the reputation and best practices of established exchanges. On the other hand, creditors' protection is more relevant in non-OECD countries, where weak legal protection of creditors reduces the scope of bank finance, forcing Governments to look for external finance abroad.

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Bibliographic Info

Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 293.

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Length: pages
Date of creation: 01 Mar 2000
Date of revision:
Handle: RePEc:wdi:papers:2000-293

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Related research

Keywords: privitisation; cross-listing; international financial markets; political economy; investor protection;

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References

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  1. Erik Berglof & Ernst-Ludwig von Thadden, 1999. "The Changing Corporate Governance Paradigm: Implications for Transition and Developing Countries," William Davidson Institute Working Papers Series 263, William Davidson Institute at the University of Michigan.
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Citations

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Cited by:
  1. Otchere, Isaac, 2007. "Does the response of competitors to privatization announcements reflect competitive or industry-wide information effects? International evidence," Journal of Empirical Finance, Elsevier, vol. 14(4), pages 523-545, September.
  2. 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.
  3. Sun, Qian & Tong, Wilson H. S., 2003. "China share issue privatization: the extent of its success," Journal of Financial Economics, Elsevier, vol. 70(2), pages 183-222, November.

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