State Ownership and Corporate Investment
59 Pages Posted: 22 Feb 2016 Last revised: 24 Aug 2018
Date Written: August 22, 2018
We investigate the relation between state ownership and corporate investment. In a matched panel of 624 European firms, state ownership curtails firms’ responsiveness to investment opportunities. With increasing government ownership, investment becomes more sensitive to internal funds when capital constraints or financing needs are high, or government has limited control over domestic banks. State ownership negatively affects investment levels but mitigates reductions during the financial crisis. We address identification concerns both econometrically and through references to existing privatization research. Overall, our evidence suggests that state ownership is associated with inefficient but stability-seeking investment policies and increased levels of capital constraints.
Keywords: Government policy and regulation, state ownership, corporate investment
JEL Classification: G32, G31, G32, G38, D92, E22
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