Privatization, Investment and Ownership Efficiency

We provide a model that explains the following empirical observations: i) private ownership is more efficient than public ownership, ii) privatizations are associated with increases in efficiency and iii) the increase in efficiency predates the privatization. The two key mechanisms explaining the results are: (i) a government owner keeping control takes into account the negative effect on employment of investment and (ii) a privatizing government has a stronger incentive to invest than an acquiring firm: the government exploits the fact that investments increase the sales price not only due to the increase in the acquirer's profit, but also due to a reduced profit for the non-acquirer

State Control and the Effects of Foreign Relations on Bilateral Trade

Do states use trade to reward and punish partners? WTO rules and the pressures of globalization restrict states’ capacity to manipulate trade policies, but we argue that governments can link political goals with economic outcomes using less direct avenues of influence over firm behavior. Where governments intervene in markets, politicization of trade is likely to occur. In this paper, we examine one important form of government control: state ownership of firms. Taking China and India as examples, we use bilateral trade data by firm ownership type, as well as measures of bilateral political relations based on diplomatic events and UN voting to estimate the effect of political relations on import and export flows. Our results support the hypothesis that imports controlled by state-owned enterprises (SOEs) exhibit stronger responsiveness to political relations than imports controlled by private enterprises. A more nuanced picture emerges for exports; while India’s exports through SOEs are more responsive to political tensions than its flows through private entities, the opposite is true for China. This research holds broader implications for how we should think about the relationship between political and economic relations going forward, especially as a number of countries with partially state-controlled economies gain strength in the global economy

Are Intra-Industry Investment Patterns Consistent with Cost Disadvantages to Cross-Border Investing? Evidence from the U.S. Chemical Industry

This paper tests whether the pattern of related and unrelated acquisitions is consistent with the existence of cost disadvantages to cross-border investing. Data from the U.S. chemical industry (1978–89) are consistent with the implications that foreign investors are more likely than domestic investors to make closely related acquisitions. The data also indicate that U.S. FTC antitrust policy affected the pattern of domestic acquisitions.© 1995 JIBS. Journal of International Business Studies (1995) 26, 843–857

Public Offerings of State-Owned and Privately-Owned Enterprises: An International Comparison.

The authors compare initial offer prices in privatizations to initial prices in public offerings of private companies. The evidence indicates that government officials in the United Kingdom underprice initial public offerenings (IPOs) significantly more than their private company counterparts. In Canada and Malaysia, however, the opposite is true. There does not appear to be a general tendency for privatizations to be underpriced to a greater degree than private company IPOs. The authors provide additional evidence on the determinants of privatization initial returns. Their findings indicate that initial returns are significantly higher in relatively primitive capital markets and for privatized companies in regulated industries. Copyright 1997 by American Finance Association.