Partial Privatization And Firm Performance: Evidence From India

http://deepblue.lib.umich.edu/bitstream/2027.42/39810/3/wp426.pd

Partial Privatization and Firm Performance: Evidence from India

Privatization in India is mostly limited to the diffuse sale of minority stakes in firms. Since control rights have not been transferred to private owners it is widely contended that the process has had little impact on firm behavior. We find however that even the sale of minority stakes has a positive impact on firm performance and productivity. As the government remains the controlling owner in these firms, we infer that the improvement is attributable to the role of the stock market in monitoring managerial performance rather than to a change in owners' objectives. Consistent with this interpretation, we find that improvements in earnings are due to an increase in the productivity of labor rather than layoffs. Partial privatization continues to affect the sales and operating efficiency of firms when we control for competitive conditions, and the evidence also suggests that privatization and competition have a complementary impact on firm performance.partial privatization,India, manager incentives, firm behavior, stock market monitoring

Financial Dependence, Stock Market Liberalizations, and Growth

Stock market liberalizations provide a natural experiment to test for the causal relation between financial development and economic growth. We test this relation by investigating whether liberalizations facilitate growth through the particular mechanism of reducing capital market imperfections that drive a wedge between the external and internal cost of capital to firms. Using panel data on a large sample of emerging markets, we find no evidence of a uniform shift across all sectors in average industry growth following liberalization. Instead, consistent with the hypothesis that liberalizations lower the incremental cost of external capital, it appears that industries that depend more on external finance experience significantly higher growth following liberalization. We also find that growth occurs through the creation of new establishments, which is more likely to require external funds, rather than through an expansion in the average size of existing establishments, which firms are more likely to finance with internal cash. These results are robust to alternative hypotheses, country and industry specific controls, other economic reforms, world business cycle e ects, and contemporaneous macroeconomic shocks.http://deepblue.lib.umich.edu/bitstream/2027.42/39947/3/wp562.pd

Financial Dependence, Stock Market Liberalizations, and Growth

Stock market liberalizations provide a natural experiment to test for the causal relation between financial development and economic growth. We test this relation by investigating whether liberalizations facilitate growth through the particular mechanism of reducing capital market imperfections that drive a wedge between the external and internal cost of capital to firms. Using panel data on a large sample of emerging markets, we find no evidence of a uniform shift across all sectors in average industry growth following liberalization. Instead, consistent with the hypothesis that liberalizations lower the incremental cost of external capital, it appears that industries that depend more on external finance experience significantly higher growth following liberalization. We also find that growth occurs through the creation of new establishments, which is more likely to require external funds, rather than through an expansion in the average size of existing establishments, which firms are more likely to finance with internal cash. These results are robust to alternative hypotheses, country and industry specific controls, other economic reforms, world business cycle e ects, and contemporaneous macroeconomic shocks.

Deconstructing the Hailing of “Mother India”

This paper focuses on the gendered discourse of nationalism by studying the iconography of “Mother India”. It will also examine the ways through which the representation of motherhood as national allegory creates a gendered meaning of nationalism. By tracing the historiography of “Mother India”, it will also highlight how men during the Indian nationalist period took the center stage as protectors while women were left behind as m(others) of a vulnerable nation that needs to be protected

Seller Cheap Talk in Common Value Auctions

Sellers benefit on average from revealing information about their goods to buyers, but the incentive to exaggerate undermines the credibility of seller statements. When multiple goods are being auctioned, we show that ordinal cheap talk, which reveals a complete or partial ordering of the different goods by value, can be credible. Ordinal statements are not susceptible to exaggeration because they simultaneously reveal favorable information about some goods and unfavorable information about other goods. Any informative ordering increases revenues in accordance with the linkage principle, and the complete ordering is asymptotically revenue-equivalent to full revelation as the number of goods becomes large. These results provide a new explanation in addition to bundling, versioning, and complementarities for how a seller benefits from the sale of multiple goods.cheap talk; linkage principle; winner's curse; auctions

Priorities and Sequencing in Privatization: Theory and Evidence from the Czech Republic

While privatization of state-owned enterprises has been one of the most important aspects of economic transition from a centrally planned to a market system, no transition economy has privatized all its firms simultaneously. This raises the issue of whether governments strategically privatize firms. In this paper we examine theoretically and empirically the determinants of the sequencing of privatization. First, we develop new and adapt existing theoretical models in order to obtain testable predictions about factors that may affect the sequencing of privatization. In doing so, we characterize potentially competing government objectives as (i) maximizing sales revenue from privatization or public goodwill from transferring shares of firms to voters, (ii) increasing economic efficiency, and (iii) reducing political costs due to layoffs. Next, we use an enterprise-level data set from the Czech Republic to test the competing theoretical predictions about which firm characteristics affect the sequencing of privatization. We find strong evidence that more profitable firms were sold first. This suggests that the government sequenced the sale of firms in a way that is consistent with our theories of sale revenue maximization and/or maximizing public goodwill from subsidized share transfers to citizens. Our results are also consistent with Shleifer and Vishny's (1994) prescription for increasing efficiency when there are political costs to employment losses caused by privatization. We also find that the Glaeser-Scheinkman (1996) recommendations for increasing efficiency by privatizing first firms subject to large informational shocks are consistent with our results. Finally, our findings are inconsistent with the government pursuing a static Pareto efficiency objective. In addition to enhancing the general understanding of privatization, our evidence suggests that many empirical studies of the effects of privatization on firm performance may suffer from selection bias since privatized firms are likely to have observable and unobservable characteristics that make them more profitable than firms that remain under state ownership.http://deepblue.lib.umich.edu/bitstream/2027.42/39707/3/wp323.pd

Best Foot Forward or Best for Last in a Sequential Auction?

Should an informed seller of multiple goods sell the best goods first to make a favorable impression on buyers, or instead hold back on the best goods until buyers have learned more from earlier sales? To help answer this question we consider the sequential auction of two goods by a seller with private information about their values. We find that the seller's sequencing strategy endogenously generates correlation in the values of the goods across periods, thereby giving the seller an incentive to impress buyers by leading with the better good. This impression effect implies that selling the better good first is the unique equilibrium in many situations, and that selling the better good last is never a unique equilibrium. Nevertheless, if the seller could commit to a sequencing strategy, revenues would often be higher from waiting to sell the better good last. Either sequencing strategy reveals the seller's ranking of the goods and thereby, due to the linkage principle, generates higher revenues than either randomly selling the goods or selling them simultaneously.sequential auction; impression effect; linkage principle; declining price anomaly

Priorities and Sequencing in Privatization: Theory and Evidence from the Czech Republic

While privatization of state-owned enterprises has been one of the most important aspects of economic transition from a centrally planned to a market system, no transition economy has privatized all its firms simultaneously. This raises the issue of whether governments strategically privatize firms. In this paper we examine theoretically and empirically determinants of the sequencing of privatization. First, we adapt and develop theoretical models in order to obtain testable predictions about factors that affect the sequencing of privatization. In doing so, we characterize government objectives as (i) increasing economic efficiency, (ii) maximizing sales revenue from privatization or public goodwill from transferring shares of firms to voters, and (iii) reducing political costs due to layoffs. Next, we use an enterprise-level data set from the Czech Republic to test the competing theoretical predictions about which firm characteristics affect the sequencing of privatization. We find strong evidence that more profitable firms were sold first. This outcome suggests that the government sequenced the sale of firms to maximize sale revenues and/or public goodwill from subsidized share transfers to citizens. In addition to enhancing the general understanding of privatization, our evidence suggests that many empirical studies of the effects of privatization on firm performance may suffer from selection bias since privatized firms are likely to have observable and unobservable characteristics that make them more profitable than the firms that are not privatized.