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A Dynamic Model of Privatization with Endogenous Post-Privatization Performance

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  • Jiahua Che

Abstract

This paper presents a dynamic model of privatization, driven by improved institutional protection of private property rights and constrained by the buyer's financial constraints. Government ownership is more efficient than private ownership when private property rights are insecure. Improved institutional protection of property rights over time creates the need to privatize. The buyer's financial constraints affect the timing of privatization, causing the firm's post-privatization performance either to improve or to deteriorate in the short run. Financial constraints also have the possibility of inducing an underpricing phenomenon during privatization where the firm is priced below both what the buyer is willing to pay and the buyer's ability to pay. Faster institutional development calls for earlier privatization, but it also has the potential to either create or exacerbate deadweight losses associated with inefficient privatization. A host of empirically testable implications are derived. Copyright , Wiley-Blackwell.

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  • Jiahua Che, 2009. "A Dynamic Model of Privatization with Endogenous Post-Privatization Performance," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 76(2), pages 563-596.
    • Handle: RePEc:oup:restud:v:76:y:2009:i:2:p:563-596
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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2009.00533.x
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    Cited by:

    1. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 112(4), pages 1091-1126.
    2. Stefan Buehler & Simon Wey, 2014. "When Do State-Owned Firms Crowd Out Private Investment?," Journal of Industry, Competition and Trade, Springer, vol. 14(3), pages 319-330, September.
    3. Wagner, Rodrigo, 2018. "Can the market value state-owned enterprises without privatizing them? An application to natural resources companies," Resources Policy, Elsevier, vol. 59(C), pages 282-290.
    4. Xi Li & Xuewen Liu & Yong Wang, 2015. "A Model of China's State Capitalism," HKUST IEMS Working Paper Series 2015-12, HKUST Institute for Emerging Market Studies, revised Feb 2015.
    5. Duane Windsor, 2010. "The Role of Dynamics in Stakeholder Thinking," Journal of Business Ethics, Springer, vol. 96(1), pages 79-87, August.

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