Are All Government Owners Viewed the Same? Evidence from Government Acquisitions of Publicly Traded Firms

Abstract

I study shareholder wealth effects associated with different types of government investors and varying levels of political interference in a sample of 2,118 government equity investments spanning 71 countries from 1987 to 2013. The results indicate that government investors are not viewed by the market as a homogeneous group. Investors differentiate their expectations of government investment targets based on the government investor’s implied level of political interference. Government investors that are most likely to have political motivations have negative value effects on target firms, while other government investors have positive effects, similar in size to other non-government investors. The negative effects are stronger for investments in domestic firms, in more regulated industries, by left-wing governments, and for large share purchases. Post-acquisition performance is weaker for targets of politically motivated government investors and is consistent with the pursuit of non-profit maximizing objectives by these investors.