Does Government Ownership Affect the Cost of Debt? Evidence from Privatization
Top Cited Papers
- 2 March 2011
- journal article
- Published by Oxford University Press (OUP) in The Review of Financial Studies
- Vol. 24 (8), 2693-2737
- https://doi.org/10.1093/rfs/hhq154
Abstract
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
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