Large Shareholders, Private Benefits of Control, and Optimal Schemes of Privatization

27 Pages Posted: 5 Apr 1998

See all articles by Francesca Cornelli

Francesca Cornelli

London Business School; Centre for Economic Policy Research (CEPR)

David D. Li

Hong Kong University of Science & Technology (HKUST) - Department of Economics

Multiple version iconThere are 2 versions of this paper

Date Written: September 1997

Abstract

We analyze optimal schemes for privatization of state enterprises when foreign investors are potential buyers. The highest bidders may not be the best large shareholders for the state enterprise, since their bid may only reflect their high private benefit of control. The government finds itself facing a trade-off between trying to obtain the highest possible payment (the ?revenue? objective) and identifying the company which will operate better in the future (the ?efficiency? objective). Therefore, ordinary auctions are not appropriate. Our optimal privatization schemes in many cases require the use of the number of shares sold as a crucial instrument to attract the most efficient investors.

JEL Classification: G32, D44

Suggested Citation

Cornelli, Francesca and Li, David Daokui, Large Shareholders, Private Benefits of Control, and Optimal Schemes of Privatization (September 1997). Available at SSRN: https://ssrn.com/abstract=56048 or http://dx.doi.org/10.2139/ssrn.56048

Francesca Cornelli (Contact Author)

London Business School ( email )

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HOME PAGE: http://www.lbs.ac.uk/faculty/fcornelli/

Centre for Economic Policy Research (CEPR)

London
United Kingdom

David Daokui Li

Hong Kong University of Science & Technology (HKUST) - Department of Economics ( email )

Clear Water Bay
Kowloon, Hong Kong
China
(852) 2358-7610 (Phone)
(852) 2358-2084 (Fax)

HOME PAGE: http://home.ust.hk/~davidli

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