IDEAS home Printed from https://ideas.repec.org/a/eee/corfin/v14y2008i5p654-673.html
   My bibliography  Save this article

Political connections of newly privatized firms

Author

Listed:
  • Boubakri, Narjess
  • Cosset, Jean-Claude
  • Saffar, Walid

Abstract

We investigate the extent of political connections in newly privatized firms. Using a sample of 245 privatized firms headquartered in 27 developing and 14 developed countries over the period 1980 to 2002, we find that 87 firms have a politician or an ex-politician on their board of directors. Politically-connected firms are generally incorporated in major cities, are highly leveraged, and operate in regulated sectors. The likelihood of observing political connections in these firms is positively related to government residual ownership, and negatively related to foreign ownership. Political fractionalization and tenure, as well as judicial independence are also key explanatory variables. Finally, politically-connected firms exhibit a poor accounting performance compared to their non-connected counterparts.

Suggested Citation

  • Boubakri, Narjess & Cosset, Jean-Claude & Saffar, Walid, 2008. "Political connections of newly privatized firms," Journal of Corporate Finance, Elsevier, vol. 14(5), pages 654-673, December.
    • Handle: RePEc:eee:corfin:v:14:y:2008:i:5:p:654-673
    as

    Download full text from publisher

    File URL: http://www.sciencedirect.com/science/article/pii/S0929-1199(08)00062-X
    Download Restriction: Full text for ScienceDirect subscribers only
    ---><---

    As the access to this document is restricted, you may want to search for a different version of it.

    References listed on IDEAS

    as
    1. Thomas Ferguson & Hans-Joachim Voth, 2008. "Betting on Hitler—The Value of Political Connections in Nazi Germany," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 123(1), pages 101-137.
    2. Simeon Djankov & Rafael La Porta & Florencio Lopez-de-Silanes & Andrei Shleifer, 2002. "The Regulation of Entry," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(1), pages 1-37.
    3. Chutatong Charumilind & Raja Kali & Yupana Wiwattanakantang, 2006. "Connected Lending: Thailand before the Financial Crisis," The Journal of Business, University of Chicago Press, vol. 79(1), pages 181-218, January.
    4. Rafael La Porta & Florencio Lopez-de-Silanes & Cristian Pop-Eleches & Andrei Shleifer, 2004. "Judicial Checks and Balances," Journal of Political Economy, University of Chicago Press, vol. 112(2), pages 445-470, April.
    5. Jean-Jacques Laffont & Jean Tirole, 1993. "A Theory of Incentives in Procurement and Regulation," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262121743, April.
    6. La Porta, Rafael & Lopez-de-Silanes, Florencio & Shleifer, Andrei & Vishny, Robert, 2000. "Investor protection and corporate governance," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 3-27.
    7. Simeon Djankov & Peter Murrell, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 739-792, September.
    8. Fan, Joseph P.H. & Wong, T.J. & Zhang, Tianyu, 2007. "Politically connected CEOs, corporate governance, and Post-IPO performance of China's newly partially privatized firms," Journal of Financial Economics, Elsevier, vol. 84(2), pages 330-357, May.
    9. Agrawal, Anup & Knoeber, Charles R, 2001. "Do Some Outside Directors Play a Political Role?," Journal of Law and Economics, University of Chicago Press, vol. 44(1), pages 179-198, April.
    10. Cull, Robert & Xu, Lixin Colin, 2005. "Institutions, ownership, and finance: the determinants of profit reinvestment among Chinese firms," Journal of Financial Economics, Elsevier, vol. 77(1), pages 117-146, July.
    11. John Vickers & George Yarrow, 1991. "Economic Perspectives on Privatization," Journal of Economic Perspectives, American Economic Association, vol. 5(2), pages 111-132, Spring.
    12. Barberis, Nicholas & Maxim Boycko & Andrei Shleifer & Natalia Tsukanova, 1996. "How Does Privatization Work? Evidence from the Russian Shops," Journal of Political Economy, University of Chicago Press, vol. 104(4), pages 764-790, August.
    13. Manzetti, Luigi, 1994. "The politics of privatization and deregulation in Latin America," The Quarterly Review of Economics and Finance, Elsevier, vol. 34(Supplemen), pages 43-76.
    14. Wolfgang Aussenegg & Ranko Jelic, 2007. "The Operating Performance of Newly Privatised Firms in Central European Transition Economies," European Financial Management, European Financial Management Association, vol. 13(5), pages 853-879, November.
    15. repec:bla:jfinan:v:59:y:2004:i:6:p:2835-2870 is not listed on IDEAS
    16. Rafael La Porta & Florencio Lopez‐De‐Silanes & Andrei Shleifer, 1999. "Corporate Ownership Around the World," Journal of Finance, American Finance Association, vol. 54(2), pages 471-517, April.
    17. Faccio, Mara & Lang, Larry H. P., 2002. "The ultimate ownership of Western European corporations," Journal of Financial Economics, Elsevier, vol. 65(3), pages 365-395, September.
    18. Boycko, Maxim & Shleifer, Andrei & Vishny, Robert W., 1997. "Privatizing Russia," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262522284, April.
    19. Megginson, William L & Nash, Robert C & van Randenborgh, Matthias, 1994. "The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis," Journal of Finance, American Finance Association, vol. 49(2), pages 403-452, June.
    20. Johnson, Simon & Mitton, Todd, 2003. "Cronyism and capital controls: evidence from Malaysia," Journal of Financial Economics, Elsevier, vol. 67(2), pages 351-382, February.
    21. Mara Faccio, 2006. "Politically Connected Firms," American Economic Review, American Economic Association, vol. 96(1), pages 369-386, March.
    22. Nandini Gupta, 2005. "Partial Privatization and Firm Performance," Journal of Finance, American Finance Association, vol. 60(2), pages 987-1015, April.
    23. John Vickers & George Yarrow, 1988. "Privatization: An Economic Analysis," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262720116, April.
    24. Claessens, Stijn & Djankov, Simeon & Lang, Larry H. P., 2000. "The separation of ownership and control in East Asian Corporations," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 81-112.
    25. Beck, Thorsten & Cull, Robert & Jerome, Afeikhena, 2005. "Bank privatization and performance: Empirical evidence from Nigeria," Journal of Banking & Finance, Elsevier, vol. 29(8-9), pages 2355-2379, August.
    26. 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.
    27. Bernardo Bortolotti & Paolo Pinotti, 2008. "Delayed privatization," Public Choice, Springer, vol. 136(3), pages 331-351, September.
    28. Andrei Shleifer & Robert W. Vishny, 1994. "Politicians and Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 109(4), pages 995-1025.
    29. Boubakri, Narjess & Cosset, Jean-Claude & Guedhami, Omrane, 2005. "Postprivatization corporate governance: The role of ownership structure and investor protection," Journal of Financial Economics, Elsevier, vol. 76(2), pages 369-399, May.
    30. MARA FACCIO & RONALD W. MASULIS & JOHN J. McCONNELL, 2006. "Political Connections and Corporate Bailouts," Journal of Finance, American Finance Association, vol. 61(6), pages 2597-2635, December.
    31. Paolo Mauro, 1995. "Corruption and Growth," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 110(3), pages 681-712.
    32. Villalonga, Belen, 2000. "Privatization and efficiency: differentiating ownership effects from political, organizational, and dynamic effects," Journal of Economic Behavior & Organization, Elsevier, vol. 42(1), pages 43-74, May.
    33. Bortolotti, Bernardo & Siniscalco, Domenico, 2004. "The Challenges of Privatization: An International Analysis," OUP Catalogue, Oxford University Press, number 9780199249343.
    34. Asim Ijaz Khwaja & Atif Mian, 2005. "Do Lenders Favor Politically Connected Firms? Rent Provision in an Emerging Financial Market," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(4), pages 1371-1411.
    35. D'Souza, Juliet & Megginson, William & Nash, Robert, 2005. "Effect of institutional and firm-specific characteristics on post-privatization performance: Evidence from developed countries," Journal of Corporate Finance, Elsevier, vol. 11(5), pages 747-766, October.
    36. 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.
    37. Kaufmann, Daniel & Kraay, Aart & Mastruzzi, Massimo, 2006. "Governance matters V: aggregate and individual governance indicators for 1996 - 2005," Policy Research Working Paper Series 4012, The World Bank.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Boubakri, Narjess & Cosset, Jean-Claude & Guedhami, Omrane & Saffar, Walid, 2011. "The political economy of residual state ownership in privatized firms: Evidence from emerging markets," Journal of Corporate Finance, Elsevier, vol. 17(2), pages 244-258, April.
    2. Berkman, Henk & Cole, Rebel A. & Fu, Lawrence J., 2010. "Political Connections and Minority-Shareholder Protection: Evidence from Securities-Market Regulation in China," Journal of Financial and Quantitative Analysis, Cambridge University Press, vol. 45(6), pages 1391-1417, December.
    3. Beuselinck, Christof & Cao, Lihong & Deloof, Marc & Xia, Xinping, 2017. "The value of government ownership during the global financial crisis," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 481-493.
    4. Henk Berkman & Rebel A. Cole & Lawrence J. Fu, 2014. "Improving corporate governance where the State is the controlling block holder: evidence from China," The European Journal of Finance, Taylor & Francis Journals, vol. 20(7-9), pages 752-777, September.
    5. Chen, Ruiyuan & El Ghoul, Sadok & Guedhami, Omrane & Wang, He, 2017. "Do state and foreign ownership affect investment efficiency? Evidence from privatizations," Journal of Corporate Finance, Elsevier, vol. 42(C), pages 408-421.
    6. Hamdi Ben‐Nasr & Narjess Boubakri & Jean‐Claude Cosset, 2012. "The Political Determinants of the Cost of Equity: Evidence from Newly Privatized Firms," Journal of Accounting Research, Wiley Blackwell, vol. 50(3), pages 605-646, June.
    7. Laura Cabeza García & Silvia Gómez Ansón, 2012. "What Drives the Operating Performance of Privatised Firms?," Scottish Journal of Political Economy, Scottish Economic Society, vol. 59(1), pages 1-27, February.
    8. Piotroski, Joseph D. & Zhang, Tianyu, 2014. "Politicians and the IPO decision: The impact of impending political promotions on IPO activity in China," Journal of Financial Economics, Elsevier, vol. 111(1), pages 111-136.
    9. Mara Faccio, 2010. "Differences between Politically Connected and Nonconnected Firms: A Cross‐Country Analysis," Financial Management, Financial Management Association International, vol. 39(3), pages 905-928, September.
    10. Guedhami, Omrane & Pittman, Jeffrey A. & Saffar, Walid, 2009. "Auditor choice in privatized firms: Empirical evidence on the role of state and foreign owners," Journal of Accounting and Economics, Elsevier, vol. 48(2-3), pages 151-171, December.
    11. Ben-Nasr, Hamdi, 2016. "Labor protection and government control: Evidence from privatized firms," Economic Modelling, Elsevier, vol. 52(PB), pages 485-498.
    12. Chaney, Paul K. & Faccio, Mara & Parsley, David, 2011. "The quality of accounting information in politically connected firms," Journal of Accounting and Economics, Elsevier, vol. 51(1), pages 58-76.
    13. 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.
    14. Boubakri, Narjess & El Ghoul, Sadok & Guedhami, Omrane & Megginson, William L., 2018. "The market value of government ownership," Journal of Corporate Finance, Elsevier, vol. 50(C), pages 44-65.
    15. Yeh, Yin-Hua & Shu, Pei-Gi & Chiu, Shean-Bii, 2013. "Political connections, corporate governance and preferential bank loans," Pacific-Basin Finance Journal, Elsevier, vol. 21(1), pages 1079-1101.
    16. D'Souza, Juliet & Megginson, William & Nash, Robert, 2007. "The effects of changes in corporate governance and restructurings on operating performance: Evidence from privatizations," Global Finance Journal, Elsevier, vol. 18(2), pages 157-184.
    17. Cabeza-García, Laura & Gómez-Ansón, Silvia, 2011. "Post-privatisation ownership concentration: Determinants and influence on firm efficiency," Journal of Comparative Economics, Elsevier, vol. 39(3), pages 412-430, September.
    18. Bram De Lange & Bruno Merlevede, 2020. "State-Owned Enterprises across Europe: Stylized Facts from a Large Firm-level Dataset," Working Papers of Faculty of Economics and Business Administration, Ghent University, Belgium 20/1006, Ghent University, Faculty of Economics and Business Administration.
    19. Wang, Fangjun & Xu, Luying & Zhang, Junrui & Shu, Wei, 2018. "Political connections, internal control and firm value: Evidence from China's anti-corruption campaign," Journal of Business Research, Elsevier, vol. 86(C), pages 53-67.
    20. Feng, Xunan & Johansson, Anders C. & Zhang, Tianyu, 2015. "Mixing business with politics: Political participation by entrepreneurs in China," Journal of Banking & Finance, Elsevier, vol. 59(C), pages 220-235.

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:eee:corfin:v:14:y:2008:i:5:p:654-673. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Catherine Liu (email available below). General contact details of provider: http://www.elsevier.com/locate/jcorpfin .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.