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Privatization, Corporate Control and Regulatory Reform: The case of Telefonica

  • Germa Bel

    (Universitat de Barcelona)

  • Francesc Trillas

    (Universitat Autonoma de Barcelona)

This study analyzes the interaction of agency problems in public policy and of agency problems inside the firm: it investigates the case of a large privatized firm subject to many policy constraints. The last steps of Telefonica's privatization were designed to promote a disperse ownership and give managers a high level of discretion in running the company. By this, the government effectively created an agency problem inside the firm. There were no powerful shareholders to constrain the managers, and the threat of a takeover was not a credible one, since the government kept a golden share. There is no overall evidence of capture of politicians and regulators by managers in the interest of shareholders, although evidence suggests the existence of collusion between politicians and managers. We interpret the political interference with the firm’s control (a well documented phenomenon both in this study and in the cross-country literature on privatization; e.g. political ends in privatization, influence in appointments, golden shares) as the most visible part of such collusion. Liberalization and multi-level regulation will likely make any type of collusion or capture more difficult in the future.

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File URL: http://econwpa.repec.org/eps/fin/papers/0409/0409053.pdf
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Paper provided by EconWPA in its series Finance with number 0409053.

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Length: 24 pages
Date of creation: 24 Sep 2004
Date of revision:
Handle: RePEc:wpa:wuwpfi:0409053
Note: Type of Document - pdf; pages: 24
Contact details of provider: Web page: http://econwpa.repec.org

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  1. Trillas, Francesc, 2001. "The takeover of Enersis: the control of privatized utilities," Utilities Policy, Elsevier, vol. 10(1), pages 25-45, March.
  2. Robison, H David & Davidson, Wallace N, III & Glascock, John L, 1995. "The Formation of Public Utility Holding Companies and Their Subsequent Diversification Activity," Journal of Regulatory Economics, Springer, vol. 7(2), pages 199-214, March.
  3. 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.
  4. Antony W. Dnes & Jonathan S. Seaton, 1999. "The Regulation of British Telecom: An Event Study," Journal of Institutional and Theoretical Economics (JITE), Mohr Siebeck, Tübingen, vol. 155(4), pages 610-, December.
  5. Germa Bel, 2002. "Privatization: public offerings and political objectives," Applied Economics, Taylor & Francis Journals, vol. 34(11), pages 1421-1432.
  6. Jensen, Michael C, 1986. "Agency Costs of Free Cash Flow, Corporate Finance, and Takeovers," American Economic Review, American Economic Association, vol. 76(2), pages 323-29, May.
  7. Besanko, David & D'Souza, Julia & Thiagarajan, S Ramu, 2001. "The Effect of Wholesale Market Deregulation on Shareholder Wealth in the Electric Power Industry," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 65-88, April.
  8. Trillas, Francesc, 0. "Mergers, acquisitions and control of telecommunications firms in Europe," Telecommunications Policy, Elsevier, vol. 26(5-6), pages 269-286, June.
  9. 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.
  10. Koski, Heli A. & Majumdar, Sumit K., 2002. "Paragons of virtue? Competitor entry and the strategies of incumbents in the U.S. local telecommunications industry," Information Economics and Policy, Elsevier, vol. 14(4), pages 453-480, December.
  11. DeAngelo, Harry & DeAngelo, Linda & Gilson, Stuart C., 1996. "Perceptions and the politics of finance: Junk bonds and the regulatory seizure of First Capital Life," Journal of Financial Economics, Elsevier, vol. 41(3), pages 475-511, July.
  12. Jean-Jacques Laffont & Jean Tirole, 2001. "Competition in Telecommunications," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262621509, June.
  13. Bel, Germa, 2003. "Confidence building and politics in privatization: some evidence from Spain," Economics Letters, Elsevier, vol. 78(1), pages 9-16, January.
  14. Jones, Steven L. & Megginson, William L. & Nash, Robert C. & Netter, Jeffry M., 1999. "Share issue privatizations as financial means to political and economic ends," Journal of Financial Economics, Elsevier, vol. 53(2), pages 217-253, August.
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