State Ownership and Debt Choice: Evidence from Privatization

49 Pages Posted: 3 Apr 2017 Last revised: 16 Mar 2018

See all articles by Narjess Boubakri

Narjess Boubakri

American University of Sharjah - School of Business and Management; HEC Montreal - Department of Finance

Walid Saffar

Hong Kong Polytechnic University - School of Accounting and Finance

Date Written: October 25, 2017

Abstract

In this paper we examine the link between state ownership and the choice of public debt versus bank debt in an international context. Using a large sample of privatized firms from 62 countries over the 2001-2014 period, we find that state ownership is significantly positively associated with the use of bank debt financing, suggesting that privatized firms benefit from the soft budget constraint associated with state ownership. This result holds after conducting several endogeneity and robustness tests. We further find that the positive relation between state ownership and bank debt reliance is more pronounced in countries with high government ownership of banks, high corruption in bank lending, a left-oriented government, and a collectivist national culture, which provides additional support for the soft budget constraint view. Finally, in external validity tests we find that state ownership affects other aspects of debt structure such as debt maturity and debt security.

Keywords: State Ownership; Debt Choice; Privatization

JEL Classification: G18; G21; G32; G38; P16

Suggested Citation

Boubakri, Narjess and Saffar, Walid, State Ownership and Debt Choice: Evidence from Privatization (October 25, 2017). Available at SSRN: https://ssrn.com/abstract=2943229 or http://dx.doi.org/10.2139/ssrn.2943229

Narjess Boubakri

American University of Sharjah - School of Business and Management ( email )

P.O. Box 26666
Sharjah
United Arab Emirates

HOME PAGE: http://www.aus.edu

HEC Montreal - Department of Finance ( email )

3000 Chemin de la Cote-Sainte-Catherine
Montreal, Quebec H3T 2A7
Canada

Walid Saffar (Contact Author)

Hong Kong Polytechnic University - School of Accounting and Finance ( email )

Li Ka Shing Tower
Hong Hum
Kowloon
Hong Kong

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