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Privatization and Finance

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  • William Megginson

    () (Michael F. Price College of Business, University of Oklahoma, Norman, Oklahoma 73019)

Abstract

This paper summarizes research examining how privatization programs implemented by governments over the past three decades have changed the size and efficiency of global financial markets, altered the practice of corporate finance in economies that experienced large privatizations, and impacted the returns earned by individual investors who purchased stock in a privatized company. I show how sales programs have changed during the three historical eras of privatization, describe the principal methods that governments use to sell state-owned enterprises (SOEs) to private investors, and examine how governments choose between selling SOEs directly to existing operating companies or investor groups through direct sales (asset sales) and selling stock to investors through share issue privatizations (SIPs). I document and examine the role privatization has played in increasing the total market capitalization of global stock exchanges from $3.2 trillion in 1983 to over $62 trillion in 2007. I show that investors have benefited from purchasing SIP shares, both in the short and long term, and attempt to answer the critical question: What do governments have left to sell?

Suggested Citation

  • William Megginson, 2010. "Privatization and Finance," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 145-174, December.
  • Handle: RePEc:anr:refeco:v:2:y:2010:p:145-174
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-financial-073009-104029
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    Cited by:

    1. Borisova, Ginka & Yadav, Pradeep K., 2015. "Government ownership, informed trading, and private information," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 196-211.
    2. Malginov, Georgiy & Radygin, Alexander, 2015. "Property management of the state treasury of the Russian Federation: some of the current trends," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 4, pages 20-46.
    3. Boubakri, Narjess & Cosset, Jean-Claude & Saffar, Walid, 2017. "The constraints on full privatization: International evidence," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 392-407.
    4. Abbott, Malcolm, 2015. "Reform and efficiency of New Zealand's airports," Utilities Policy, Elsevier, vol. 36(C), pages 1-9.
    5. Boubakri, Narjess & Guedhami, Omrane & Saffar, Walid, 2016. "Geographic location, foreign ownership, and cost of equity capital: Evidence from privatization," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 363-381.
    6. Korczak, Adriana & Korczak, Piotr, 2013. "The development of emerging stock markets and the demand for cross-listing," Journal of Empirical Finance, Elsevier, vol. 24(C), pages 63-77.
    7. repec:eee:corfin:v:46:y:2017:i:c:p:232-247 is not listed on IDEAS
    8. Del Bo, Chiara D. & Ferraris, Matteo & Florio, Massimo, 2017. "Governments in the market for corporate control: Evidence from M&A deals involving state-owned enterprises," Journal of Comparative Economics, Elsevier, vol. 45(1), pages 89-109.
    9. Borisova, Ginka & Yadav, Pradeep K., 2015. "Government ownership, informed trading, and private information," CFR Working Papers 15-13, University of Cologne, Centre for Financial Research (CFR).
    10. Belkhir, Mohamed & Ben-Nasr, Hamdi, 2016. "Labor protection and the privatization or partial privatization method," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 305-322.
    11. Alexander Radygin & Revold Entov, 2014. "The Fundamental Privatization Theorem: Ideology, Evolution, Practice," Working Papers 0087, Gaidar Institute for Economic Policy, revised 2014.
    12. Cosset, Jean-Claude & Somé, Hyacinthe Y. & Valéry, Pascale, 2016. "Credible reforms and stock return volatility: Evidence from privatization," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 99-120.
    13. Radygin, Alexander & Entov, Revold, 2013. ""Fundamental" theorem of privatization: ideology, evolution, practice," Economic Policy, Russian Presidential Academy of National Economy and Public Administration, pages 7-45, December.
    14. repec:eee:rujoec:v:1:y:2015:i:1:p:55-80 is not listed on IDEAS

    More about this item

    Keywords

    cross-listing; privatization; American depository receipt;

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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