Does Government Ownership Affect the Cost of Debt? Evidence from Privatization

Review of Financial Studies, Vol. 24, pp. 2693-2737, 2011

Posted: 8 Mar 2011 Last revised: 4 Dec 2011

See all articles by Ginka Borisova

Ginka Borisova

Iowa State University - Department of Finance

William L. Megginson

University of Oklahoma

Multiple version iconThere are 2 versions of this paper

Date Written: March 2, 2011

Abstract

We explore whether government ownership affects the cost of debt using a sample of fully and partially privatized companies. On average across firms, a one-percentage-point decrease in government ownership is associated with an increase in the credit spread, used as a proxy for the cost of debt, by three-quarters of a basis point. However, fully privatized companies exhibit lower credit spreads than partially privatized firms, indicating the cost of a lengthy privatization process. Empirical evidence suggests that these findings result from decreasing government guarantees, firm performance improvements, ownership uncertainty, and bondholder-shareholder conflicts.

Keywords: Government Ownership, Privatization, Cost of Debt, Bonds

JEL Classification: G32, G38, L33

Suggested Citation

Borisova, Ginka and Megginson, William L., Does Government Ownership Affect the Cost of Debt? Evidence from Privatization (March 2, 2011). Review of Financial Studies, Vol. 24, pp. 2693-2737, 2011. Available at SSRN: https://ssrn.com/abstract=1780484

Ginka Borisova (Contact Author)

Iowa State University - Department of Finance ( email )

College of Business
Ames, IA 50011-2063
United States

William L. Megginson

University of Oklahoma ( email )

307 W Brooks, 205A Adams Hall
Norman, OK 73019
United States
(405) 325-2058 (Phone)
(405) 325-1957 (Fax)

HOME PAGE: http://faculty-staff.ou.edu/M/William.L.Megginson-

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