Privatization Prices Research Articles

Merchants of Reputation: Privatization Under Elites' Outside Lobbying

An economic elite wants to buy a public asset as cheaply as possible, whose ownership is decided by an incumbent politician who can be of high or low competence. The elite can exert influence through two channels: they can make a take-it-or-leave-it offer for the asset, and they can manipulate the information available to voters about the incumbent's competence. A key innovation of this paper is to consider that the elite's capacity to mobilise information can complement their buying offer: by attacking the incumbent (trying to uncover bad news about his competence before his decision to sell) or threatening him (menacing to uncover bad news if he refuses to sell), the elite can reduce the privatization prices. I show that the elite often (but not always) uses threats against a leading incumbent (one who has better reputation ex-ante than her challenger) and attacks against a trailing one. Surprisingly, I find that a better reputation can actually render an incumbent more susceptible to the elite's influence. The paper also highlights the large distortions induced by the elite's capacity to mobilise information about incumbent politicians.

Privatization by Auction: Determinants of Asset Prices in Kosovo

ABSTRACT The contribution of this paper is twofold. First, we use the administrative dataset of the Privatization Agency of Kosovo between 2003 and 2018 to analyze the factors affecting privatization prices. We identify the effects of five sets of variables: features of the auction process; Privatization Agency-related variables; buyer characteristics; asset characteristics; and election-related variables. Second, beyond this econometric investigation, we explore the complexities of the privatization process in Kosovo, in particular the Kosovo-specific factors that may have influenced the prices of privatized enterprises and assets. Policy implications suggest measures to enhance the credibility of the privatization process and related institutions.

Privatization and labor policies

Using new data we analyze retrenchment programs before privatization, their effect on prices paid and re-hiring policies pursued by the new private owners. We find evidence in support of skimming and adverse selection. We find that some labor retrenchment policies have a negative impact on net privatization prices, even after taking sample selection bias and endogeneity into account. Some downsizing policies may lead to a higher frequency of post-privatization re-hiring. Skill-biased retrenchment programs are the only ones marginally associated with higher privatization prices and minimal re-hiring rates after privatization. But the political and economic costs of such programs may make them impractical.

Should State-Owned Firms Change CEOS Before Privatization? The Case of the Telecommunications Industry

Should state-owned enterprises change chief executive officer before privatizing? We test competing views on this question by complementing a recently released database with newly collected data. We are able to cover 77 telecommunications privatizations, which account for nearly 80 percent of the sector in terms of value. We find that CEO replacement will improve performance in the telecommunications industry before privatization as measured by penetration, operating efficiency, and profitability. CEO change before privatization does appear to have real consequences in firm performance before privatization. Moreover, findings are consistent with previous research that links CEO replacement and an increase in privatization prices

Erratum to: Political and institutional environment and privatization prices

Erratum to: Political and institutional environment and privatization prices

Political and institutional environment and privatization prices

We study the link between the political and institutional context and privatization sales prices. The latter serves as a measure for assessing the extent to which privatization goals have been met. Whereas this link has been studied theoretically, there are very few, if any, empirical papers on this relationship. We use data from 308 privatizations around the world and apply a cross-country approach, including instrumental variables. We find that while the overall political regime does not matter much for prices, the political processes beyond the basic regime do matter. Institutional context also produces a significant impact on prices. Both results are robust to changes in specification.

Streamlining and Privatization Prices in the Telecommunications Industry

We study the link between state‐owned restructuring before privatization and privatization sales prices for the telecommunications industry. We use new data to cover 84 telecommunications privatizations, which account for nearly 80% of the sector in terms of value. We focus on streamlining policies and regulatory issues prior to privatization and find that, while most labour streamlining measures have no bearing on privatization prices, the presence of a regulatory agency prior to privatization does impact on prices, especially if such an agency was set up well before the sale took place.

A Pricing Analysis of Cardiovascular & Blood Products After Privatization of Drug Distribution System in Malaysia

This study reviews privatization effect of Malaysian drug distribution system on prices of cardiovascular and blood products. After privatization prices show variable pattern, increased to (5%) after a year of privatization, decreased to 0.098% in 1997-2000 and again increased to 80% in year 2001-2003. The increase in prices after privatization could not be correlated with inflation rate and was not explained by any pricing mechanism. Comparison with International Reference Prices showed tremendously higher prices for most of the drugs. The findings invite enacting of price control mechanisms and adapting a reference and differential medicine pricing system to curb public expenditures. [Article copies available for a fee from The Haworth Document Delivery Service: 1-800-HAWORTH. E-mail address: Website:  2005 by The Haworth Press, Inc. All rights reserved.]

Political Environment and Privatization Prices

This paper studies the link between the political and institutional context and privatization sales prices. The latter serves as a measure for assessing the relative performance of the privatization goals. Whereas this link has been studied theoretically, there are very few, if any, empirical papers on this relationship. Using data from 308 privatizations around the world and applying a cross-country approach (including instrumental variables), we find that, while the overall political regime does not matter much for prices, the political processes beyond the basic regime do matter. Institutional context also produces a significant impact on prices. Both results are robust to changes in specification.

The determinants of privatization prices: evidence from Turkey

This paper analyses the determinants of privatization prices in a multi-industry study using a sample of 68 recently privatized firms from Turkey. Results show that revenue and market characteristics are significant determinants of privatization prices while current cost and profit indicators are not. It is argued that potential buyers regard these state firms as inefficient, therefore do not take into consideration their current costs and profits in determining their value. When the dependent variable is altered by dividing the firm's privatization price by the firm's sales (revenues), it is found that sales-adjusted privatization prices are responsive to firms profit margins. However, this result does not hold when the sample is restricted to a single industry. Profit margins along with other profitability and firm efficiency measures are no longer significant determinants of sales-adjusted privatization prices in the cement industry analysis. Unexploited production opportunities measured by capacity utilization ratios, and complete private ownership resume a more important role.

Streamlining and Privatization Prices in the Telecommunications Industry

This paper fills a void in the issue of determinants of privatization prices by concentrating in one industry across many countries. This has not been done before, as the literature has only focused on (i) many industries in one country, (ii) a single industry in one country, and (iii) many industries in many countries. We complement a recently released database with newly collected data, and we are able to cover 84 telecommunications privatizations, which account for nearly 80 percent of the sector in terms of value. Our findings are consistent with the little existing work on privatization prices, as our best policy prescription is primarily to concentrate on the transparency and cleanliness of the privatization process, as sale methods do matter. We show that government administration of labor downsizing may result in adverse selection, as the best workers are the first to leave when given the opportunity.

Privatization and Labor Force Restructuring Around the World

Some critics of privatization argue that poor labor force restructuring is a key concern and that governments should establish better retrenchment programs. Using new data from a sample of 400 companies in the world, Chong and Lopez-de-Silanes test competing theories about the wisdom of retrenchment programs and theireffect on prices paid by buyers, and rehiring policies by private owners after privatization. The results show that adverse selection plagues retrenchment programs carried out by governments before privatization. Controlling for endogeneity, several labor retrenchment policies yield a negative impact on net privatization prices. In confirmation of the adverse selection argument, various types of voluntary downsizing lead to a higher frequency of rehiring of the same workers by the new private owners. Compulsory skill-based programs are the only type of program that is marginally associated with higher prices and lower rehiring rates after privatization, but the political and economic costs of this policy may make it somewhat impractical. While a qualified non-intervention policy appears to be the safest bet in labor retrenchment before privatization, another one might be to set up a social safety net or labor reallocation program before privatization, and then let the new private owners decide who is redundant and who is not. Setting up the program before privatization may help with the political viability of the process and letting the new owners manage the retrenchment may help avoid adverse selection.

Environmental Liability and Privatization in Central and Eastern Europe: Toward an Optimal Policy

It has been estimated that the costs of remediating contaminated sites in Central and Eastern Europe (CEE) will be very high. These contingent environmental liabilities have emerged precisely at the time CEE countries are attempting to privatize their capital stocks, creating major challenges for privatization agencies. It is also generally agreed that an inadequate handling of these liabilities in the past has reduced sales of state-owned enterprises in Central and Eastern Europe.This paper uses an analytical model to identify optimal policies for minimizing the damage to privatization processes from environmental liabilities. Policy simulations are conducted which evaluate the effects of the use of liability indemnifications and environmental audits on privatization sales, prices and government revenues net of environmental costs. The major finding of the paper is that goals to mitigate the effects of environmental liability on privatizations and maximize government net revenues from privatization sales require equivalent environmental liability policies. Both goals require optimal provision of information and indemnifications to investors, and moreover it is found that the two policies are complementary rather than substitutes.

The Sale of Highway 407 Express Toll Route

The C$3.1 billion sale of Ontario9s Highway 407 Express Toll Route in May 1999 represents a milestone in the privatization of public infrastructure. This privatization, the largest in Canadian history, is noteworthy not only because of its size but because of the rapid and large value the transaction generated for Ontario. Through the sale of this public asset, the Province of Ontario received more than double its estimated C$3.1 billion investment, even though the road had been opened and tolled for only eighteen months. By tracing the history of the privatization of highway 407, this article highlights the importance of risk allocation and the concession process in the determination of infrastructure privatization prices.

Privatization under political interference: Evidence from Eastern Germany

Can privatization authority be successfully delegated to a privatization agency? To address this question we examine the liquidation policy of the German privatization agency. The theoretical part develops a dynamic model of optimal liquidation under incomplete political insulation of the privatization agency. We explore how external political interference affects its liquidation policy and derive testable implications for the distribution of liquidation decisions and privatization prices. The empirical part uses micro data on 1804 privatization contracts and 1097 liquidation decisions to verify the model predictions. The data confirm the view that political liquidation constraints are an important determinant of privatization outcomes.

Determinants of Privatization Prices

Generating government revenue is a common objective in privatization. This paper asks what determines privatization prices using firm-level data for all 236 Mexican companies privatized between 1983 and 1992. There are three main reasons why net prices—auction prices net of the cost of prior restructuring measures—are low, averaging 54 cents per dollar of assets. First, privatization prices are very sensitive to the level of competition in the auction and restrictions often limited participation. Second, the privatization process took too long, and lengthier privatizations are associated with lower premiums. Third, firm prior restructuring measures absorbed an average of 33 percent of the auction price. Most restructuring measures do not increase price and delay privatization further. Net prices would have increased by 71 cents per dollar of assets if the government had emphasized speed, succeeding in divesting assets in one year less than the average, and firing the CEO were the only restructuring step taken.