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Abstract:
This paper examines the financial and operating performance of 31 national telecommunication companies in 25 countries that were fully or partially privatised through public share offering between October 1981 and November 1998. Using conventional pre- versus post-privatisation comparisons, we find that profitability, output, operating efficiency and capital investment spending increase significantly after privatisation, while employment and leverage decline significantly. However, these univariate comparisons do not account for separate regulatory and ownership effects (retained government stake), and almost all telecoms are subjected to material new regulatory regimes around the time they are privatised. We examine these separate effects using both random and fixed-effect panel data estimation techniques for a seven-year period around privatisation. We verify that privatisation is significantly related to higher profitability, output and efficiency, and with significant declines in leverage. However, we also find numerous separable effects for variables measuring regulation, competition, retained government ownership and foreign listing (on U.S. and U.K. exchanges). Competition significantly reduces profitability, employment and, surprisingly, efficiency after privatisation, while creation of an independent regulatory agency significantly increases output. Mandating third party access to an incumbent - network is associated with a significant decrease in the incumbent - investment and an increase in employment. Retained government ownership is associated with a significant increase in leverage and a significant decrease in employment, while price regulation significantly increases profitability. Major efficiency gains result from better incentives and productivity, rather than from wholesale firing of employees and profitability increases appear to be caused by significant reductions in costs - rather than price increases. On balance, we conclude that the financial and operating performance of telecommunications companies improves significantly after privatisation, but that a sizeable fraction of the observed improvement results from regulatory changes - alone or in combination with ownership changes - rather than from privatisation alone.

Privatisation, regulation, corporate governance, telecommunications

Abstract:
This study describes the newly created Monitor-FEEM Sovereign Wealth Fund Transaction Database and discusses the investment patterns and performance of 1,216 individual investments, worth over $357 billion, made by 35 sovereign wealth funds (SWFs) between January 1986 and September 2008. Approximately half of the investments we document occur after June 2005, reflecting a recent surge of SWF activity. We document large SWF investments in listed and unlisted equity, real estate, and private equity funds, with the bulk of investments being targeted in cross-border acquisitions of sizeable but non-controlling stakes in operating companies and commercial properties. The average (median) SWF investment is a $441 million ($55 million) acquisition of a 42.3% (26.2%) stake in an unlisted company; the most active SWFs originate from Singapore or the United Arab Emirates. Almost one-third (30.9%) of the number, and over half of the value (54.6%) of SWF investments are directed toward financial firms. The vast majority of SWF investments involve privately-negotiated purchases of ownership stakes in underperforming firms. We perform an event study analysis using a sample of 235 SWF acquisitions of equity stakes in publicly traded companies around the world, and document a significantly positive mean abnormal return of about 0.9% around the announcement date. However, one-year matched-firm abnormal returns of SWFs average - 15.49%, suggesting equity acquisitions by SWFs are followed by deteriorating firm performance. In cross sectional analysis, we find weak evidence of benefits associated with a monitoring role of SWFs and evidence consistent with agency costs created by conflicts of interest between SWFs and minority shareholder. SWFs have collectively lost over $66 billion on their holdings of listed stock investments alone through March 2009.

Sovereign wealth funds, International financial markets, Government policy and regulation

Abstract:
We study the change in government control of privatized firms in OECD (Organisation for Economic Co-operation and Development) countries. At the end of 2000, after the largest privatization wave in history, governments retained control of 62.4% of privatized firms. In civil law countries, governments tend to retain large ownership positions, whereas in common law countries they typically use golden shares. When we combine these two mechanisms, we find no association between a country's legal tradition and the extent of government control. Rather, we document more prevalent government influence over privatized firms in countries with proportional electoral rules and with a centralized system of political authority.

D72, G15, H6, K22, L33

Abstract:
We study the change in government control of privatized firms in OECD countries. Results indicate that governments typically transfer ownership rights without relinquishing proportional control. Control is commonly retained by leveraging state investments through pyramids, dual-class shares, and golden shares. Indeed, at the end of 2000, after the largest privatization wave in history, governments retain control of 62.4% of privatized firms. In civil law countries, governments tend to retain large ownership positions, whereas in common law countries they typically use golden shares. However, when we combine these two mechanisms, we find no association between a country's legal tradition and the extent of government control. Rather, we document more prevalent government influence over privatized firms in countries with proportional electoral rules and with a centralized system of political authority.

Privatization, Corporate Governance

Abstract:
Privatisation, i.e. the transfer of ownership and control of state-owned enterprises, is a worldwide phenomenon. Which political, economic and institutional factors are shaping this process? This paper addresses the issue presenting new evidence from a sample of 49 countries. From an empirical analysis of the period 1977-96, the decision to privatise and the choice of privatisation method appear to be influenced by the governing political majority and public sector budget constraints, while the success of privatisation in terms of revenues and stakes sold requires suitable institutions and developed capital markets.

Privatisation, politics, budget deficit, investor protection, enforcement of law, capital markets

Abstract:
This paper presents new evidence about privatisation processes and their determinants from a panel of 34 countries over the 1977-99 period. The empirical analysis shows that privatisation takes place typically in wealthy and democratic countries, endowed with deep and liquid stock markets, and is affected by the governing political majority and public sector budget constraints. But the extent of privatisation in terms of revenues and stakes sold appears more limited in civil law countries, where shareholders are poorly protected, banks powerful, and capital markets less developed.

Privatisation, Public Finance, Political Economy, Law and Finance, Capital Markets

Abstract:
This paper provides an empirical analysis of the role of political institutions in privatization. Using panel data for 21 industrialized countries in the 1977-1999 period, first we show that the timing and extent of privatization is affected by political fragmentation and proportional elections. As theory predicts, in consensual democracies large-scale privatization appears to be delayed by a war of attrition among different veto players. Second, privatization seems strongly affected by partisan politics. Particularly, right-wing executives with re-election concerns design privatization to spread share ownership among domestic voters.

Keywords: Political Institutions, Partisan Politics, Privatization

Abstract:
This study describes the newly created FEEM-Monitor Sovereign Wealth Fund Database and discusses the investment patterns and performance achieved for 1,216 individual investments, worth over $357 billion, made by 28 sovereign wealth funds (SWFs) between January 1986 and September 2008. We document large SWF investments in listed and unlisted equity, real estate, and private equity funds, with the bulk of investments being targeted in cross-border acquisitions of sizable but non-controlling stakes in operating companies and commercial properties. The average (median) SWF investment is a $441 million ($55 million) acquisition of a 42.3% (26.2%) stake in an unlisted American, British, or Singaporean company, made by a SWF from Singapore or the United Arab Emirates in June 2005. Almost one-third (30.9%) of the number, and over half of the value (54.6%) of SWF investments are directed toward financial firms. The vast majority of SWF investments involve privately-negotiated purchases of ownership stakes, with only 23 deals worth $677 million being listed as open market purchases of stock in listed firms. We also perform an event study using a sample of 235 SWF acquisitions of equity stakes in publicly traded companies around the world, and document a significantly positive mean abnormal return of about 0.9% around the announcement date. However, one-year risk-adjusted abnormal returns of SWFs average a significantly negative 26%, suggesting equity acquisitions by SWFs are followed by deteriorating firm performance. SWFs have collectively lost over $98 billion-fully 78% of original value-on their holdings of listed stock investments alone through February 2009

Sovereign wealth funds, International financial markets, Government policy and regulation

Abstract:
This study describes the newly created Monitor-FEEM Sovereign Wealth Fund Database and discusses the investment patterns and performance of 1,216 individual investments, worth over $357 billion, made by 35 sovereign wealth funds (SWFs) between January 1986 and September 2008. Approximately half of the investments we document occur after June 2005, reflecting a recent surge of SWF activity. We document large SWF investments in listed and unlisted equity, real estate, and private equity funds, with the bulk of investments being targeted in cross-border acquisitions of sizeable but non-controlling stakes in operating companies and commercial properties. The average (median) SWF investment is a $441 million ($55 million) acquisition of a 42.3% (26.2%) stake in an unlisted company; the most active SWFs originate from Singapore or the United Arab Emirates. Almost one-third (30.9%) of the number, and over half of the value (54.6%) of SWF investments are directed toward financial firms. The vast majority of SWF investments involve privately-negotiated purchases of ownership stakes in underperforming firms. We perform event study analysis using a sample of 235 SWF acquisitions of equity stakes in publicly traded companies around the world, and document a significantly positive mean abnormal return of about 0.9% around the announcement date. However, one-year matched-firm abnormal returns of SWFs average -15.49%, suggesting equity acquisitions by SWFs are followed by deteriorating firm performance. In cross sectional analysis, we find weak evidence of benefits associated with a monitoring role of SWFs and evidence consistent with agency costs created by conflicts of interest between SWFs and minority shareholder. SWFs have collectively lost over $57 billion on their holdings of listed stock investments alone through March 2009.

Sovereign wealth funds, International financial markets, Government policy and regulation

Abstract:
Nontradable shares (NTS) are an unparalleled feature of the ownership structure of Chinese listed companies and represented a major hurdle to domestic financial market development. After some failed attempts, in 2005 the Chinese authorities have launched a structural reform program aiming at eliminating NTS. In this paper, we evaluate the stock price effects of the actual implementation of this reform in 368 firms. The NTS reform generated a statistically significant 8 percent positive abnormal return over the event window, adjusting prices for the compensation requested by tradable shareholders. Results are consistent with the expectation of improved economic fundamentals such as better corporate governance and enhanced liquidity.

Chinese Equity Market, Financial Market Development, Split-Share Structure

Abstract:
Seasoned equity offerings (SEOs) executed through accelerated underwritings have increased global market share recently, raising over $850 billion since 1998, and now account for over half (two-thirds) of the value of U.S. (European) SEOs. We examine 31,242 global SEOs, executed during 1991-2004, which raise over $2.9 trillion for firms and selling shareholders. Compared to fully marketed deals, accelerated offerings occur more rapidly, raise more money, and require fewer underwriters. Importantly, accelerated deals reduce total issuance cost by about 250 basis points. Accelerated deals sell equal fractions of primary and secondary shares, whereas in traditional SEOs primary shares dominate. Announcement period returns are comparable for traditional and accelerated offerings, while secondary and mixed offerings trigger more negative market responses than do primary offerings. We conclude that this rapid, worldwide shift towards accelerated underwriting creates a spot market for SEOs, and represents the long-predicted shift towards an auction model for seasoned equity sales.

Equity offerings, underwriting, investment banking

Abstract:
Seasoned common stock sales executed through accelerated underwitings have dramatically increased global market share recently. Block trades, bought deals and accelerated bookbuilt offerings have raised over $750 billion since 1998, and now account for over half of U.S. seasoned equity offerings (SEOs) and over two-thirds of European SEOs. We examine 31,242 SEOs, executed around the world during 1991-2004, which raised over $2.6 trillion for issuing firms (in primary offers) and selling shareholders (in secondary offers). Compared to fully marketed deals, the 5,110 accelerated offerings are sold much more rapidly, raise significantly more per offering, have lower underwriting spreads and require fewer underwriting banks. Roughly equal fractions of primary and secondary shares are offered in accelerated deals, whereas newly issued primary shares represent over three-fourths of traditional SEOs. In the United States, accelerated deals (overwhelmingly block trades of shelf-registered, primary shares) have significantly lower spreads, less negative announcement period excess returns than marketed SEOs, and are less underpriced, so their total issuance costs are 300 basis points lower. Total issuance costs for non-US accelerated offers are also significantly lower than for marketed SEOs, but less dramatically so. We conclude that this rapid, worldwide shift towards accelerated underwriting is commoditizing seasoned equity sales, and represents the long-predicted shift towards an auction model for seasoned equity sales.

Investment banking, government policy and regulation, financial policy

Abstract:
This paper provides an empirical analysis of Governments' decisions to sell privatised companies on both international and domestic markets in a sample of 392 privatisations in 42 countries in the 1977-1998 period. Political theories of privatisation find strong support in our analyses: market oriented Governments favour domestic investors in the allocation of shares. The need to expose the company to global competition, to penetrate foreign markets and to warrant better legal protection to shareholders also appears as relevant. Significant differences emerge in OECD and non-OECD countries. In wealthy economies stock market liquidity favours cross-listing, while in emerging countries Governments resort to cross-listing in order to "import" liquidity and to develop domestic stock markets. Legal institutions also play a different role. In OECD countries, weak shareholder protection induces Governments to cross-list, in order to borrow the reputation and best practices of established exchanges. On the other hand, creditors' protection is more relevant in non-OECD countries, where weak legal protection of creditors reduces the scope of bank finance, forcing Governments to look for funds abroad.

Abstract:
We study the government's decision to sell a state-owned enterprise to strategic investors in a common value auction setting. The government can choose to sell his control stake all at once, or to design a sequential auction of shares. The sequential auction allows information transmission, so that the winner of the first stake receives a signal about the value of control rights which will be sold at the second and final
auction. We show that if bidders are symmetric, the sequential auction and the block auction are revenue equivalent. If instead one of the bidders has private information, the sequential auction is more profitable for the government. By disseminating information, the sequential auction forces the informed bidder to bid more aggressively, raising expected revenues.

Privatization, auctions

Abstract:
This paper reviews the state of thinking on the governance role of public ownership and control. We argue that the transfer of operational control over productive assets to the private sector represents the most desirable governance, due to the inherent difficulty for citizens to constrain political abuse relative to the ability of governments to regulate private activity. However in weak institutional environments the process needs to be structured so as to avoid capture of the regulatory process. The speed of transfer should be timed on the progress in developing a strong regulatory governance system, to which certain residual rights of intervention must be vested. After all, what are "institutions" if not governance mechanisms with some degree of autonomy from both political and private interests? The gradual creation of institutions partially autonomous from political power must become central to the development of an optimal mode of regulatory governance. We advance some suggestions about creating accountability in regulatory governance, in particular creating an internal control system based on a rotating board representative of users, producers and civil society, to be elected by a process involving frequent reporting and disclosure.

Regulatory Governance, Privatization

Abstract:
Privatization has certainly been one of the main events of the economic and financial history of the 20th century. Between 1997 and 2004 more than 4,000 privatization operations were carried out in the world, bringing to governments revenues for over 1,350 US $billion. Western Europe emerges as the most important region, having implemented the greatest number of privatizations and raised a half of global revenues. The relevance of Western Europe in the process can be ascribed to several factors. This paper investigates the causes of this process, summarizes the main trends of privatization activity at the country level, analyzes the main privatization drivers and provides an account of the main findings of the effects of privatization at the macro and microeconomic level.

Privatization, State-Owned Sector, Capital Markets, Financial Development

Abstract:
We construct a comprehensive panel data of 96 publicly traded European utilities over the period 1994-2005 in order to study the relationship between the capital structure of regulated firms, regulated prices, and investments, and examine if and how this interaction is affected by ownership structure. We show that firms in our sample increase their leverage after becoming regulated by an independent regulatory agency, but only if they are privately controlled. Moreover, we find that the leverage of these firms has a positive and significant effect on regulated prices, but not vice versa, and it also has a positive and significant effect on their investment levels. Our results are consistent with the theory that privately-controlled firms use leverage strategically to shield themselves against regulatory opportunism.

Regulated Utilities, Regulatory Agencies, Capital Structure, Leverage, Investment, Private and State Ownership

Abstract:
This report provides an overview of the causes and consequences of the Italian State-owned Enterprises (SOE) reform process. Particularly, it analyzes the symbiotic link between share issue privatization (SIP), i.e. privatization in public equity markets, and financial market development, and shows how the sustained policy of sales has jumpstarted the Italian domestic stock market. Based on the Italian and international experience, the report provides some possible guidelines and policy recommendations in order to achieve the same goal in the People's Republic of China (PRC).

State-owned enterprises, Share issue privatization, Financial development, Italy, China

Abstract:
Privatisation, i.e. the transfer of ownership and control of state-owned enterprises, is a worldwide phenomenon. Which political, economic and institutional factors are shaping this process? This paper addresses the issue presenting new evidence from a sample of 49 countries. From an empirical analysis of the period 1977-96, the decision to privatise and the choice of privatisation method appear to be influenced by the governing political majority and public sector budget constraints, while the success of privatisation in terms of revenues and stakes sold requires suitable institutions and developed capital markets.

Privatisation, politics, budget deficit, investor protection, enforcement of law, capital markets.

Abstract:
In 2005-2006 China reformed its stock market by eliminating non-tradable shares. The regulator set general guidelines and then assigned responsibility for implementation to each company. We derive relations that should have been followed by the prices of stocks and exploit a company-level data set to compare the actual and the theoretical price reactions. We find evidence for abnormal returns both before the beginning of the reform and during the reform. Cross-sectionally, abnormal returns are associated mainly with turnover and compensation. This shows that in a speculative market, investors do not properly react to unambiguous corporate actions.

Speculation, Chinese Stock Market, Market segmentation, Event study, Market Efficiency

Abstract:
This paper studies the timing of privatization in 21 major developed economies in the 1977-2002 period. Duration analysis shows that political fragmentation plays a significant role in explaining government's decision to privatize: privatization is delayed longer in democracies characterized by a larger number of parties and operating under proportional electoral rules, as predicted by war of attrition models of economic reform. Results are robust to various assumptions on the underlying statistical model and to controlling for other economic and political factors.

Privatization, Political Economy, War of Attrition

Abstract:
Using panel data of 19 developed economies in the period 1985-2000, we show that share issue privatization (SIP) strongly affects a fundamental aspect of financial development: Market liquidity. First, we identify the channels through which a sustained SIP program boosts the liquidity of the overall market. Then, we explicitly test whether SIP has a positive spillover effect on the liquidity of private companies' shares. Liquidity appears to be sensitive to the amount of shares sold to retail investors, whose trading reduces the adverse selection component of the price impact. The cross-listing of shares exhibits an even stronger effect, suggesting that international offerings eliminate informational barriers and attract foreign investors to the domestic market, thereby reducing its risk premium.

Privatization, financial market development, international finance

Abstract:
In 2005-2006 China reformed its stock market by eliminating non-tradable shares. The regulator set general guidelines and then assigned responsibility for implementation to each company. We derive relations that should have been followed by the prices of stocks and exploit a company-level data set to compare the actual and the theoretical price reactions. We find evidence for abnormal returns both before the beginning of the reform and during the reform. Cross-sectionally, abnormal returns are associated mainly with turnover and compensation. This shows that in a speculative market, investors do not properly react to unambiguous corporate actions.

Speculation, Chinese Stock Market, Market segmentation, Event study, Market

Abstract:
Privatization through global equity market placement has largely contributed to financial market development and integration. Despite the relevance of the fact, the reasons underlying governments' choice to sell shares of privatized companies abroad are still poorly understood. This paper presents new evidence for a sample of 233 share issue privatizations in 20 OECD countries, showing that redistribution concerns and the objective of domestic financial market development make domestic privatization more likely. However, if budget constraints are binding, governments tend to sell abroad a larger quantity of shares, particularly when corporate governance at home is weak.

Abstract:
We construct a comprehensive panel data of 92 publicly traded European utilities over the period 1994-2005 in order to study the relationship between capital structure, regulated prices, and firm value, and examine if and how this interaction is affected by ownership structure and regulatory independence. We show that regulated firms in our sample tend to have a higher leverage if they are privately-controlled and if they are regulated by an independent regulatory agency. Moreover, we find that the leverage of these firms has a positive and significant effect on their regulated prices, but not vice versa, and it also has a positive and significant effect on their market values. Our results are consistent with the theory that privately-controlled firms use leverage strategically to shield themselves against regulatory opportunism.

capital structure, leverage, private and state ownership, Regulated utilities, regulatory agencies, regulatory independence

Abstract:
Which legal, political, and economic institutions are shaping privatization processes in the world? This paper addresses the issue, presenting new evidence for a sample of 49 countries. From an empirical analysis for the period 1977-96, the decision to privatize appears to be influenced by governments' preferences and budget constraints, but the success of a privatization process requires, in addition, appropriate legal institutions, credible governments and developed capital markets.