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Privatization and Finance

Author

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  • William Megginson

    (Michael F. Price College of Business, University of Oklahoma, Norman, Oklahoma 73019)

Abstract

This paper summarizes research examining how privatization programs implemented by governments over the past three decades have changed the size and efficiency of global financial markets, altered the practice of corporate finance in economies that experienced large privatizations, and impacted the returns earned by individual investors who purchased stock in a privatized company. I show how sales programs have changed during the three historical eras of privatization, describe the principal methods that governments use to sell state-owned enterprises (SOEs) to private investors, and examine how governments choose between selling SOEs directly to existing operating companies or investor groups through direct sales (asset sales) and selling stock to investors through share issue privatizations (SIPs). I document and examine the role privatization has played in increasing the total market capitalization of global stock exchanges from $3.2 trillion in 1983 to over $62 trillion in 2007. I show that investors have benefited from purchasing SIP shares, both in the short and long term, and attempt to answer the critical question: What do governments have left to sell?

Suggested Citation

  • William Megginson, 2010. "Privatization and Finance," Annual Review of Financial Economics, Annual Reviews, vol. 2(1), pages 145-174, December.
    • Handle: RePEc:anr:refeco:v:2:y:2010:p:145-174
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    File URL: http://www.annualreviews.org/doi/abs/10.1146/annurev-financial-073009-104029
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    Citations

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    Cited by:

    1. Prachi Mishra & Nagpurnanand Prabhala & Raghuram G Rajan, 2022. "The Relationship Dilemma: Why Do Banks Differ in the Pace at Which They Adopt New Technology?," The Review of Financial Studies, Society for Financial Studies, vol. 35(7), pages 3418-3466.
    2. D'Souza, Juliet & Nash, Robert, 2017. "Private benefits of public control: Evidence of political and economic benefits of state ownership," Journal of Corporate Finance, Elsevier, vol. 46(C), pages 232-247.
    3. Michael Peneder & Susanne Bärenthaler-Sieber & Michael Böheim & Thomas Url, 2021. "Der Staat als langfristiger Investor," WIFO Studies, WIFO, number 66819, January.
    4. Radygin, Alexander & Simachev, Yury & Entov, Revold, 2015. "The state-owned company: “State failure” or “market failure”?1," Russian Journal of Economics, Elsevier, vol. 1(1), pages 55-80.
    5. Malginov, Georgiy (Мальгинов, Георгий) & Radygin, Alexander (Радыгин, Александр), 2015. "Property management of the state treasury of the Russian Federation: some of the current trends [Управление Имуществом Государственной Казны Рф: Некоторые Актуальные Тенденции]," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, vol. 4, pages 20-46.
    6. Boubakri, Narjess & Cosset, Jean-Claude & Saffar, Walid, 2017. "The constraints on full privatization: International evidence," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 392-407.
    7. Marwan Mohamed Abdeldayem & Saeed Hameed AL Dulaimi, 2019. "Privatisation and Financial Performance in Egypt Since 1991," Asian Economic and Financial Review, Asian Economic and Social Society, vol. 9(4), pages 461-479, April.
    8. Tan, Yongxian & Tian, Xuan & Zhang, Xinde & Zhao, Hailong, 2020. "The real effect of partial privatization on corporate innovation: Evidence from China's split share structure reform," Journal of Corporate Finance, Elsevier, vol. 64(C).
    9. Carney, Richard W. & Child, Travers B. & Liu, Wai-Man & Ngo, Phong T.H., 2021. "The dynamism of partially state-owned enterprises in East Asia," Journal of Corporate Finance, Elsevier, vol. 68(C).
    10. Del Bo, Chiara D. & Ferraris, Matteo & Florio, Massimo, 2017. "Governments in the market for corporate control: Evidence from M&A deals involving state-owned enterprises," Journal of Comparative Economics, Elsevier, vol. 45(1), pages 89-109.
    11. Belkhir, Mohamed & Ben-Nasr, Hamdi, 2016. "Labor protection and the privatization or partial privatization method," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 305-322.
    12. Cosset, Jean-Claude & Somé, Hyacinthe Y. & Valéry, Pascale, 2016. "Credible reforms and stock return volatility: Evidence from privatization," Journal of Banking & Finance, Elsevier, vol. 72(C), pages 99-120.
    13. Liu, Jinyu & Wang, Zhengwei & Zhu, Wuxiang, 2021. "Does privatization reform alleviate ownership discrimination? Evidence from the Split-share structure reform in China," Journal of Corporate Finance, Elsevier, vol. 66(C).
    14. Abbott, Malcolm, 2015. "Reform and efficiency of New Zealand's airports," Utilities Policy, Elsevier, vol. 36(C), pages 1-9.
    15. Korczak, Adriana & Korczak, Piotr, 2013. "The development of emerging stock markets and the demand for cross-listing," Journal of Empirical Finance, Elsevier, vol. 24(C), pages 63-77.
    16. Borisova, Ginka & Yadav, Pradeep K., 2015. "Government ownership, informed trading, and private information," CFR Working Papers 15-13, University of Cologne, Centre for Financial Research (CFR).
    17. Radygin, Alexander & Entov, Revold, 2013. ""Fundamental" theorem of privatization: ideology, evolution, practice," Ekonomicheskaya Politika / Economic Policy, Russian Presidential Academy of National Economy and Public Administration, pages 7-45, December.
    18. Borisova, Ginka & Yadav, Pradeep K., 2015. "Government ownership, informed trading, and private information," Journal of Corporate Finance, Elsevier, vol. 33(C), pages 196-211.
    19. Oussama Nheri, 2014. "Economic reforms, corporate governance and privatization method as determinants in performance changes of new privatized firms: the case of MENA countries," Journal of Management & Governance, Springer;Accademia Italiana di Economia Aziendale (AIDEA), vol. 18(1), pages 95-127, February.
    20. Weng, Shiqi & Rong, Zhao & Yu, Li, 2024. "Institutional site visits and corporate innovation: The role of analyst coverage," Pacific-Basin Finance Journal, Elsevier, vol. 85(C).
    21. Boubakri, Narjess & Guedhami, Omrane & Saffar, Walid, 2016. "Geographic location, foreign ownership, and cost of equity capital: Evidence from privatization," Journal of Corporate Finance, Elsevier, vol. 38(C), pages 363-381.
    22. Jerry Cao & Yong Li & Xiaojuan Liu & William L. Megginson, 2024. "Foreign institutional investors’ certification and domestic minority shareholders’ mistrust," Financial Management, Financial Management Association International, vol. 53(2), pages 267-289, June.
    23. Liu, Yu & Xu, Jian, 2022. "Residual state ownership, foreign ownership and firms' financing patterns," Emerging Markets Review, Elsevier, vol. 51(PA).
    24. Goyal, Abhinav & Jategaonkar, Shrikant P. & Muckley, Cal B., 2020. "Why do privatized firms pay higher dividends?," Journal of Corporate Finance, Elsevier, vol. 60(C).
    25. Alexander Radygin & Revold Entov, 2014. "The Fundamental Privatization Theorem: Ideology, Evolution, Practice," Working Papers 0087, Gaidar Institute for Economic Policy, revised 2014.

    More about this item

    Keywords

    cross-listing; privatization; American depository receipt;
    All these keywords.

    JEL classification:

    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • L32 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Public Enterprises; Public-Private Enterprises
    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out

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