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Privatization and Leverage

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  • Christian At
  • Pierre-Henri Morand

Abstract

This article studies privatization methods when potential buyers can lever up strategically to maximize their probability of winning. We endogenize the optimal fraction of shares to be auctioned off when privatizing a company. There is a close correlation between the optimal fraction of shares to be sold off and the auction winner's debt level and hence the risk of bankruptcy. The Author 2009. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org, Oxford University Press.

Suggested Citation

  • Christian At & Pierre-Henri Morand, 2012. "Privatization and Leverage," The Journal of Law, Economics, and Organization, Oxford University Press, vol. 28(1), pages 32-44.
    • Handle: RePEc:oup:jleorg:v:28:y::i:1:p:32-44
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    File URL: http://hdl.handle.net/10.1093/jleo/ewp028
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    References listed on IDEAS

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    1. Francesca Cornelli & David D. Li, 1997. "Large Shareholders, Private Benefits of Control, and Optimal Schemes of Privatization," CESifo Working Paper Series 133, CESifo.
    2. Jensen, Michael C. & Meckling, William H., 1976. "Theory of the firm: Managerial behavior, agency costs and ownership structure," Journal of Financial Economics, Elsevier, vol. 3(4), pages 305-360, October.
    3. Narjess Boubakri & Jean‐Claude Cosset & Omrane Guedhami & Mohammed Omran, 2007. "Foreign Investor Participation In Privatizations: Does The Institutional Environment Matter?," Journal of Financial Research, Southern Finance Association;Southwestern Finance Association, vol. 30(1), pages 129-146, March.
    4. 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.
    5. William L. Megginson & Robert C. Nash & Jeffry M. Netter & Annette B. Poulsen, 2004. "The Choice of Private Versus Public Capital Markets: Evidence from Privatizations," Journal of Finance, American Finance Association, vol. 59(6), pages 2835-2870, December.
    6. Harris, Milton & Raviv, Artur, 1988. "Corporate governance : Voting rights and majority rules," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 203-235, January.
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    Cited by:

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    2. Ifzal Ahmad, 2017. "Understanding Internal, External and Relational Attributions in Reaction to Corporate Social Responsibility," Business & Economic Review, Institute of Management Sciences, Peshawar, Pakistan, vol. 9(4), pages 49-64, December.
    3. Hökelekli, Gizem & Lamey, Lien & Verboven, Frank, 2017. "Private label line proliferation and private label tier pricing: A new dimension of competition between private labels and national brands," Journal of Retailing and Consumer Services, Elsevier, vol. 36(C), pages 39-52.

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