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Foreign Investor Participation in Privatizations: does the Institutional Environment Matter?

  • Narjess Boubakri
  • Jean-Claude Cosset
  • Omrane Guedhami
  • Mohammed Omran
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    Using a two-stage estimation procedure, we examine the determinants of foreign investors' participation in the privatization process of developing countries, with a particular emphasis on the role of the institutional environment. First, we estimate the probability that foreign investors target privatized firms in a given country. We show that an investor-friendly institutional environment which protects shareholders' rights favors foreign investors' participation. Foreigners also prefer large firms from high growth economies and socially stable countries with low political risk. Second, we restrict our analysis to those firms that foreign investors actually choose. We show that the use of private sales is a key determinant of foreign investors' stake in a privatized firm.

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    Paper provided by CIRPEE in its series Cahiers de recherche with number 0405.

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    Date of creation: 2004
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    Handle: RePEc:lvl:lacicr:0405
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    1. Perotti, Enrico C, 1995. "Credible Privatization," American Economic Review, American Economic Association, vol. 85(4), pages 847-59, September.
    2. Noorbakhsh, Farhad & Paloni, Alberto & Youssef, Ali, 2001. "Human Capital and FDI Inflows to Developing Countries: New Empirical Evidence," World Development, Elsevier, vol. 29(9), pages 1593-1610, September.
    3. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, 1998. "Law and Finance," Journal of Political Economy, University of Chicago Press, vol. 106(6), pages 1113-1155, December.
    4. Kang, Jun-Koo & Stulz, Rene M., 1997. "Why is there a home bias? An analysis of foreign portfolio equity ownership in Japan," Journal of Financial Economics, Elsevier, vol. 46(1), pages 3-28, October.
    5. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June.
    6. Mary M. Shirley, 2002. "Experience with Privatisation: A New Institutional Economics Perspective," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 11(suppl_1), pages 10-31, February.
    7. Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 1998. "Corporate Ownership Around the World," Harvard Institute of Economic Research Working Papers 1840, Harvard - Institute of Economic Research.
    8. La Porta, Rafael & Lopez-de-Silanes, Florencio & Schleifer, Andrei & Vishny, Robert, 2001. "Investor Protection and Corporate Governance," Working Paper Series rwp01-017, Harvard University, John F. Kennedy School of Government.
    9. Steven Globerman & Daniel Shapiro, 2004. "Governance Infrastructure and U.S. Foreign Direct Investment," International Finance 0404008, EconWPA.
    10. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Legal Determinants of External Finance," Working Paper 19443, Harvard University OpenScholar.
    11. 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.
    12. Denis, Diane K. & McConnell, John J., 2003. "International Corporate Governance," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 38(01), pages 1-36, March.
    13. Michael J. Brennan. and H. Henry Cao., 1997. "International Portfolio Investment Flows," Research Program in Finance Working Papers RPF-271, University of California at Berkeley.
    14. Djankov, Simeon & Hoekman, Bernard M, 2000. "Foreign Investment and Productivity Growth in Czech Enterprises," World Bank Economic Review, World Bank Group, vol. 14(1), pages 49-64, January.
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