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Indiana University Bloomington

Department of Finance

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Research and Publications

Journal Articles

The Decision to Privatize: Finance and Politics

2011, Journal of Finance

I. Serdar Dinc, Nandini Gupta

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.

Citation

Gupta, Nandini, and I. Serdar Dinc (2011), “The Decision to Privatize: Finance, Politics, and Patronage,” Journal of Finance, 66(1), pages 241-269.

Keywords

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

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