All Clear for Takeoff: Evidence from Airports on the Effects of Infrastructure Privatization

89 Pages Posted: 5 Oct 2022 Last revised: 13 Dec 2022

See all articles by Sabrina T Howell

Sabrina T Howell

New York University (NYU) - Leonard N. Stern School of Business; National Bureau of Economic Research (NBER)

Yeejin Jang

UNSW Australia Business School, School of Banking and Finance

Hyeik Kim

University of Alberta - School of Business

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: December 10, 2022

Abstract

Infrastructure assets have undergone substantial privatization around the world in recent decades. How do these assets perform post-privatization? This paper examines global airports. Our central finding is that the type of ownership matters: Volume, efficiency, and quality improve substantially under private equity (PE) ownership—both following privatization and in subsequent transactions—but there is little evidence of improvement under non-PE private ownership. PE owners invest in new physical capacity and appear to negotiate more effectively with airlines, especially in the presence of a state-owned flag carrier. Higher prices and more retail revenue dramatically increase net income, with no evidence of cost reductions or layoffs. We find that improvements are concentrated when there is a competing airport nearby, when the local government is less corrupt, and with longer-term leases.

Keywords: Infrastructure, Privatization, PE, Airports

JEL Classification: G32, G38, L32, R42, H54

Suggested Citation

Howell, Sabrina T and Jang, Yeejin and Kim, Hyeik and Weisbach, Michael S., All Clear for Takeoff: Evidence from Airports on the Effects of Infrastructure Privatization (December 10, 2022). Fisher College of Business Working Paper No. 2022-03-010, Charles A. Dice Center Working Paper No. 2022-10, European Corporate Governance Institute – Finance Working Paper No. 850/2022, UNSW Business School Research Paper Forthcoming, Available at SSRN: https://ssrn.com/abstract=4237006 or http://dx.doi.org/10.2139/ssrn.4237006

Sabrina T Howell (Contact Author)

New York University (NYU) - Leonard N. Stern School of Business ( email )

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National Bureau of Economic Research (NBER) ( email )

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Yeejin Jang

UNSW Australia Business School, School of Banking and Finance ( email )

Sydney, NSW 2052
Australia

Hyeik Kim

University of Alberta - School of Business ( email )

2-43 Business Building
Edmonton, Alberta T6G 2C7
Canada

Michael S. Weisbach

Ohio State University (OSU) - Department of Finance ( email )

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Columbus, OH 43210-1144
United States

National Bureau of Economic Research (NBER)

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European Corporate Governance Institute (ECGI) ( email )

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