Does Government Ownership Affect the Cost of Debt? Evidence from Privatization
Review of Financial Studies, Vol. 24, pp. 2693-2737, 2011
Posted: 8 Mar 2011 Last revised: 4 Dec 2011
Date Written: March 2, 2011
We explore whether government ownership affects the cost of debt using a sample of fully and partially privatized companies. On average across firms, a one-percentage-point decrease in government ownership is associated with an increase in the credit spread, used as a proxy for the cost of debt, by three-quarters of a basis point. However, fully privatized companies exhibit lower credit spreads than partially privatized firms, indicating the cost of a lengthy privatization process. Empirical evidence suggests that these findings result from decreasing government guarantees, firm performance improvements, ownership uncertainty, and bondholder-shareholder conflicts.
Keywords: Government Ownership, Privatization, Cost of Debt, Bonds
JEL Classification: G32, G38, L33
Suggested Citation: Suggested Citation