Privatization and the Market for Corporate Control

38 Pages Posted: 18 Sep 2001

See all articles by J. Harold Mulherin

J. Harold Mulherin

University of Georgia - Department of Banking and Finance

Jeffry M. Netter

Department of Finance; University of Georgia Law School

Mike Stegemoller

Baylor University

Date Written: August 2004

Abstract

The most important development in international corporate governance in the past 20 years has been the privatization of state-owned enterprises. There is evidence that privatization has resulted in improved firm performance but the source of this improvement is difficult to isolate. We argue that one of the most important results of privatization for corporate governance is the potential entry of those firms into the market for corporate control as targets and bidders, which can result in improved firm performance for numerous reasons. We document the magnitude and the wealth effects of the mergers of privatized firms, attempting to find every privatized firm that was either a target or a bidder in a merger. We find 52 privatized firms that subsequently become targets of takeovers and 90 privatized firms that became bidders in 341 mergers. In general, we find that privatized firms operate very much as non-privatized firms have in the market for corporate control. Target firms experience a 12 percent increase in equity value at the announcement of a merger. Bidding firms experience a positive but insignificant change in equity value at merger announcement. The results indicate that mergers result in net wealth creation for privatized firms and are indicative that one effect of privatization is wealth-creating mergers.

Keywords: Privatization, corporate control, mergers

JEL Classification: L33, G34, G38

Suggested Citation

Mulherin, J. Harold and Netter, Jeffry M. and Stegemoller, Michael A., Privatization and the Market for Corporate Control (August 2004). Claremont Colleges Economics Working Paper No. 2001-21. Available at SSRN: https://ssrn.com/abstract=283534 or http://dx.doi.org/10.2139/ssrn.283534

J. Harold Mulherin

University of Georgia - Department of Banking and Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States
706-542-3644 (Phone)

Jeffry M. Netter (Contact Author)

Department of Finance ( email )

Terry College of Business
Athens, GA 30602-6253
United States
706-542-4450 (Phone)

HOME PAGE: http://www.terry.uga.edu/directory/profile/jnetter/

University of Georgia Law School

225 Herty Drive
Athens, GA 30602
United States

Michael A. Stegemoller

Baylor University ( email )

P.O. Box 98004
Waco, TX 76798-8004
United States
254-710-4145 (Phone)

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