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Portfolio Implications of an Equity Rain in Australia

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  • G. C. LIM
  • STUART S. KELLS

Abstract

In the next decade Australia will experience a substantial privatization program. This represents a switch away from public debt financing towards public equity financing. In this paper, estimates of the likely effect of the government's privatization program on corporate financing are provided. The main result of an increase in the supply of equities along with a commensurate reduction in the supply of government debt is to cause a significant increase in the relative cost of equity, thereby creating incentives for corporate financiers to emphasize reliance on debt financing relative to equity financing. The estimated effect on the weighted cost of finance in the economy, while positive, is small

Suggested Citation

  • G. C. Lim & Stuart S. Kells, 1995. "Portfolio Implications of an Equity Rain in Australia," The Economic Record, The Economic Society of Australia, vol. 71(4), pages 367-378, December.
    • Handle: RePEc:bla:ecorec:v:71:y:1995:i:4:p:367-378
    DOI: 10.1111/j.1475-4932.1995.tb02681.x
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    References listed on IDEAS

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    Cited by:

    1. Paul Cashin & C. John McDermott, 2002. "Intertemporal Consumption Smoothing and Capital Mobility: Evidence from Australia," Australian Economic Papers, Wiley Blackwell, vol. 41(1), pages 82-98, March.

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