RFS Advance Access published online on August 31, 2008
Review of Financial Studies, doi:10.1093/rfs/hhn077
Government Control of Privatized Firms
Department of Economics and Finance, Università di Torino and FEEM
Krannert School of Management, Purdue University
Send correspondence to Bernardo Bortolotti, Fondazione Eni Enrico Mattei, Corso Magenta 63, 20123 Milan, Italy. Telephone: +39-02-520-36942; Fax: +39-02-520-36946; E-mail: bernardo.bortolotti{at}feem.it
JEL Classification: L33, D72, G15, H6, K22
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Abstract |
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We study the change in government control of privatized firms in OECD (Organisation for Economic Co-operation and Development) countries. At the end of 2000, after the largest privatization wave in history, governments retained control of 62.4% of privatized firms. In civil law countries, governments tend to retain large ownership positions, whereas in common law countries they typically use golden shares. When we combine these two mechanisms, we find no association between a country's legal tradition and the extent of government control. Rather, we document more prevalent government influence over privatized firms in countries with proportional electoral rules and with a centralized system of political authority.
Utpal Bhattacharya played an important role in the start of this project, and we gratefully acknowledge his contribution. We thank the Athens Stock Exchange, the Australian Stock Exchange, Banque Bruxelles Lambert, Bolsa de Valores de Lisboa, Bundesaufsichtsamt für den Wertpapierhandel, Commerzbank, Hugin, the Istanbul Stock Exchange, and the Wiener Börse for generously providing us with their datasets. Thanks also to Roberto Barontini, George Benston, Utpal Bhattacharya, Bernie Black, Lorenzo Caprio, Stjin Claessens, Jean-Claude Cosset, François Degeorge, Andrea Goldstein, Nandini Gupta, Masaharu Hanazaki, Satoshi Kawanishi, Tim Loughran, Ron Masulis, Bill Megginson, Dusan Mramor, Giovanna Nicodano, David Parsley, Enrico Perotti, Paolo Pinotti, Charu Raheja, Mike Weisbach (the Editor), an anonymous referee, and seminar participants at the Development Bank of Japan, Emory University, London Business School, Ohio State University, Shanghai University, Università Statale (Milano), University of Michigan, University of Notre Dame, University of Texas at Austin, Vanderbilt University, the World Bank, the 2005 European Finance Association meeting, the 2006 American Finance Association, and the 2006 Corporate Finance Mini-Conference at University of Waterloo and Wilfrid Laurier University for providing useful comments. We also thank Yoser Gadhoum for providing us with the 1996 ultimate ownership data for Canada and the United States, and Lehman Brothers, Merrill Lynch, Morgan Stanley, and Nomura Securities for generously providing privatization prospectuses. Luca Farinola, Ettore Panetti, and Valentina Milella provided excellent research assistance. This project has been funded by Fondazione IRI, Rome, and by the European Commission (contract n. CIT5-CT-2005–028647). We thank Antonio Pedone for his support and co-operation. Mara Faccio also acknowledges support from the Hirtle Callaghan Research Scholar Award.