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The Structure of Corporate ownership in Privatized Utilities

  • Trillas, Francesco

The purpose of this Paper is to study the determinants of the concentration of ownership in a privatized, regulated firm. The discussion illustrates some aspects of the costs and benefits of different corporate systems. Privatized utilities are large firms with professional management: there is a separation between ownership and control. The agency costs of this separation interact with the regulation of the product market. The main issue to be addressed here is how the degree to which regulators weigh investor profits when setting prices (the ‘regulatory climate’) affects the structure of corporate ownership, and more specifically the degree of shareholder concentration. Another, related issue, to be addressed is how deregulation affects corporate structure. In the benchmark case where the government maximizes privatization proceeds, it is shown that the optimal level of concentration increases with a tougher regulatory climate for investors. A more lenient regulatory regime increases the value of the commitment not to interfere implicit in a more dispersed ownership structure. Deregulation (through increasing monitoring costs) also pushes corporate structure in the direction of more ownership concentration. When political objectives are added to the analysis, it is shown that lobbying with managers induces levels of shareholder dispersion that are higher than in the benchmark case. Collusion with large shareholders, however, may yield higher concentration levels than in the benchmark. In the case of managerial lobbying, the leniency of the regulatory climate does not have any impact on the equilibrium stake of the blockholder, and has a negative impact on the difference between the political and the benchmark outcomes.

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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number 3563.

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Date of creation: Sep 2002
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Handle: RePEc:cpr:ceprdp:3563
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  1. Jean Tirole, 1991. "Privatization in Eastern Europe: Incentives and the Economics of Transition," NBER Chapters, in: NBER Macroeconomics Annual 1991, Volume 6, pages 221-268 National Bureau of Economic Research, Inc.
  2. Schmidt, Klaus M., 2000. "The political economy of mass privatization and the risk of expropriation," Munich Reprints in Economics 19771, University of Munich, Department of Economics.
  3. Persson, Torsten & Tabellini, Guido, 1999. "Political economics and macroeconomic policy," Handbook of Macroeconomics, in: J. B. Taylor & M. Woodford (ed.), Handbook of Macroeconomics, edition 1, volume 1, chapter 22, pages 1397-1482 Elsevier.
  4. Trillas, Francesc, 0. "Mergers, acquisitions and control of telecommunications firms in Europe," Telecommunications Policy, Elsevier, vol. 26(5-6), pages 269-286, June.
  5. Marco Pagano & Ailsa Röell, 1998. "The Choice Of Stock Ownership Structure: Agency Costs, Monitoring, And The Decision To Go Public," The Quarterly Journal of Economics, MIT Press, vol. 113(1), pages 187-225, February.
  6. Joskow, Paul L. & Rose, Nancy L. & Shepard, Andrea., 1993. "Regulatory constraints on executive compensation," Working papers 3550-93., Massachusetts Institute of Technology (MIT), Sloan School of Management.
  7. Dieter B”s & Phillipp Harms, 1995. "Mass Privatization, Management Control and Efficiency," Discussion Paper Serie A 475, University of Bonn, Germany.
  8. Geddes, R Richard, 1997. "Ownership, Regulation, and Managerial Monitoring in the Electric Utility Industry," Journal of Law and Economics, University of Chicago Press, vol. 40(1), pages 261-88, April.
  9. Roemer, J.E., 1993. "Limited Privatization inn the Presence of Public Bads," Papers 93-13, California Davis - Institute of Governmental Affairs.
  10. Burkart, Mike & Gromb, Denis & Panunzi, Fausto, 1997. "Large Shareholders, Monitoring, and the Value of the Firm," The Quarterly Journal of Economics, MIT Press, vol. 112(3), pages 693-728, August.
  11. Demsetz, Harold & Lehn, Kenneth, 1985. "The Structure of Corporate Ownership: Causes and Consequences," Journal of Political Economy, University of Chicago Press, vol. 93(6), pages 1155-77, December.
  12. Bruno Biais & Enrico Perotti, 2002. "Machiavellian Privatization," American Economic Review, American Economic Association, vol. 92(1), pages 240-258, March.
  13. 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.
  14. Steve Thompson, 1999. "Increasingly Marginal Utilities: Diversification and Free Cash Flow in Newly Privatized UK Utilities," Review of Industrial Organization, Springer, vol. 15(1), pages 25-42, August.
  15. Scarpa, Carlo, 1994. "Regulation as a Bargaining Process: Negotiation over Price and Cost-Reducing Investments," Oxford Economic Papers, Oxford University Press, vol. 46(3), pages 357-65, July.
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