States refusal to sell

[Dan Bell <dbell@kent.edu>]

"From
>State to Market: A Survey of Empirical Studies on  
>Privatization"
>BY: WILLIAM L. MEGGINSON 
>University of Oklahoma at  Norman 
>Department of Finance 
>JEFFRY NETTER 
>University of Georgia  
>Department of Banking and Finance
>Document: Available from the SSRN  Electronic Paper Collection: 
>http://papers.ssrn.com/paper.taf?abstract_id=158313
>Paper  ID: New York Stock Exchange Working Paper No. 98-05 
>Date: March 10,  2000
>Contact: WILLIAM L. MEGGINSON 
>Email: Mailto:wmegginson@ou.edu 
>Postal: University  of Oklahoma at Norman 
>Department of Finance 
>307 West Brooks, 205A Adams  Hall 
>Norman, OK 73019-4005 USA 
>Phone: (405)325-2058 
>Fax:  (405)325-1957 
>Co-Auth: JEFFRY NETTER 
>Email: Mailto:jnetter@terry.uga.edu 
>Postal:  University of Georgia 
>Department of Banking and Finance 
>456 Brooks Hall  
>Athens, GA 30602-6250 USA
> ABSTRACT: 
>This study surveys the academic literature examining the  privatization of
>state-owned enterprises (SOEs), with a focus on 61 empirical  studies. The
>paper is written from the perspective of a policy-maker weighing  the
>adoption of a national privatization program, who seeks answers to the 
>following questions: (1) How large an impact have privatization programs 
>actually had on state involvement in different national economies?; (2)
>What are  the principal reasons for divestment?; (3) Have privatization
>programs  significantly improved the 
>  governments select  the appropriate method of selling state assets?; (5)
>How do governments price  the SOEs they wish to sell and what buyers do
>they favor?; (6) Have investors  who purchase the shares of privatized
>firms experienced positive short and  long-term returns?; (7) What impact
>have share issue privatization programs had  on the development of nation
>stock markets?; and (8) What role have  privatization programs played in
>helping countries develop effective corporate  governance systems?
> Privatization programs have reduced the average worldwide level of state 
>ownership by roughly one-half (to less than six percent) over the past two 
>decades, with the SOE share of 
>national output falling especially rapidly in  developing countries during
>the 1990s. Nations adopting large-scale  privatization programs have done
>so for three principal reasons. 
>First, the  evidence is now conclusive that privately-owned firms
>outperform SOEs and  empirical studies clearly show that privatization
>significantly (often  dramatically) improves the 
>operating and financial performance of divested  firms in both transition
>and non-transition economies. Second, governments have  raised significant
>revenues through the sale of SOEs, with the cumulative value  of such sales
>reaching $1 trillion during 1999. Third, privatization is a major 
>component in developing both capital and product markets within a country.
>The  choice between privatization via public share offering versus through 
>asset  sales is significantly related to factors such as firm size,
>government fiscal  condition, the degree of shareholder protection, and the
>degree of income  inequality. Further, those 
>countries which have chosen the mass (voucher)  privatization route have
>done so largely out of perceived necessity--and face  ongoing efficiency
>problems as a result. Governments have great discretion in  pricing the
>SOEs they sell, especially those being sold via public share  offering, and
>they use this discretion to pursue political and economic ends.  While
>maximizing revenues by setting high offering prices for SOEs is important
to 
>governments, many trade this objective off in favor of targeting sales to 
>preferred buyers in direct sales and allocating shares to domestic
>investors  (particularly SOE employees) in share offerings. On average,
>investors who  purchase shares of firms being privatized earn significantly
>positive excess  returns both in the short-run (due to deliberate
>underpricing of share issues by  the government) and over one, three, and
>five-year holding periods. Finally,  privatizations have contributed
>significantly to the development of national  stock markets and corporate
>governance systems.
>
>JEL Classification: L33,  P21
>
>********************

--
Dan Bell
International Program Coordinator
Ohio Employee Ownership Center
Kent State University
Kent, OH 44242
(330) 672-3028
(330) 672-4063 fax
dbell@kent.edu
http://www.kent.edu/oeoc/
http://cog.kent.edu