Privatization shifts residual income and control to private investors, restricting redistribution and improving incentives; thus rapid privatization should be desirable. Empirically, however, the transfer of ownership, as opposed to control, is very gradual. The author offers an explanation based on investors' concerns about future interference. A government averse to redistribution retains a passive stake in the firm; the willingness to bear residual risk signals commitment. When a large government stake conflicts with the transfer of control, underpricing may be necessary for separation. Finally, when the required discount is large, a committed government may prefer not to signal, gaining credibility over time. Copyright 1995 by American Economic Association.
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Volume (Year): 85 (1995)
Issue (Month): 4 (September)
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