The Price of Government Ownership: A Study of the Domtar Takeover

Abstract

This paper presents an analysis of how government ownership of an enterprise may affect its profitability. In August 1981, two Quebec Crown Corporations announced that they had gained control of Domtar, a private Canadian corporation. Upon receipt of this information the stock's market value dropped significantly. Over six trading days, Domtar's shareholders suffered cumulative abnormal returns of minus 25 percent, which is equivalent to a reduction in market value of approximately $150 million. Much of this loss can be attributed to government control and the anticipated pursuit of non-profit objectives.