The Decision to Privatize: Finance and Politics

47 Pages Posted: 28 Feb 2005 Last revised: 12 May 2014

See all articles by Nandini Gupta

Nandini Gupta

Indiana University - Kelley School of Business - Department of Finance

Serdar Dinc

Rutgers University

Date Written: February 17, 2010

Abstract

We investigate the influence of political and financial factors on the decision to privatize government-owned firms using firm-level data from India. We find that the government significantly delays privatization in regions where the governing party faces more competition from opposition parties. This result is robust to firm-specific factors and regional characteristics. The results also suggest that political patronage is important as no government-owned firm located in the home state of the minister in charge is ever privatized. Using political variables as an instrument for the endogenous privatization decision, we find that privatization has a positive impact on firm performance.

Keywords: Government Ownership, Political Economy, Emerging Markets, Economic Reform, State-Owned Enterprise, Interest Groups, IPO

Suggested Citation

Gupta, Nandini and Dinc, Serdar, The Decision to Privatize: Finance and Politics (February 17, 2010). Journal of Finance, Forthcoming. Available at SSRN: https://ssrn.com/abstract=735763

Nandini Gupta (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3416 (Phone)
812-855-5875 (Fax)

Serdar Dinc

Rutgers University ( email )

111 Washington Avenue
Newark, NJ 07102
United States

HOME PAGE: http://serdardinc.com

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