The Political Economy of Residual State Ownership in Privatized Firms: Evidence from Emerging Markets

Abstract

To investigate the control structure of newly privatized firms, we use a unique database of 221 privatized firms operating in 27 emerging countries over the 1980-2001 period. Specifically, we examine the determinants of residual state ownership after privatization over a window of up to six years after divestiture. We find that the residual state ownership is largely influenced by the size of the firm, the level of investor protection and the extent of corruption in the country. Controlling for the political institutions in place shows that government tenure (stability), the political system and political cohesion are important determinants of the residual state ownership in newly privatized firms. This result confirms that privatization is politically shaped and constrained by a dynamic that will differ between countries.

Keywords: Privatization, Control structure, Political institutions, Performance, Emerging markets

JEL Classification: G32