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Does Government Ownership Affect the Cost of Debt? Evidence from Privatization

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  • Ginka Borisova
  • William L. Megginson

Abstract

We explore whether government ownership affects the cost of debt using a sample of fully and partially privatized companies. On average across firms, a one-percentage-point decrease in government ownership is associated with an increase in the credit spread, used as a proxy for the cost of debt, by three-quarters of a basis point. However, fully privatized companies exhibit lower credit spreads than partially privatized firms, indicating the cost of a lengthy privatization process. Empirical evidence suggests that these findings result from decreasing government guarantees, firm performance improvements, ownership uncertainty, and bondholder-shareholder conflicts. The Author 2011. Published by Oxford University Press on behalf of The Society for Financial Studies. All rights reserved. For Permissions, please e-mail: journals.permissions@oup.com., Oxford University Press.

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  • Ginka Borisova & William L. Megginson, 2011. "Does Government Ownership Affect the Cost of Debt? Evidence from Privatization," The Review of Financial Studies, Society for Financial Studies, vol. 24(8), pages 2693-2737.
    • Handle: RePEc:oup:rfinst:v:24:y:2011:i:8:p:2693-2737
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    File URL: http://hdl.handle.net/10.1093/rfs/hhq154
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