In this paper we investigate how privatization affects stock return volatility. A credible privatization builds investors’ confidence through a reduction in political risk. In particular, a privatization program that is maintained over time signals credibility, which reduces political risk and in turn volatility. We further show that privatization is associated with lower idiosyncratic volatility mainly among developed markets, while it is associated with lower systematic volatility in developing markets. Additional tests suggest that the reduction in volatility is greater when privatization sales are carried out through the stock market than through asset sales.

We study the determinants of a firm’s decision to issue one of the four available ADR programs (Level I, Level II, Level III, and Rule 144A). We find that the firm’s attributes (size, income, asset growth, leverage, privatization, ownership structure, and country-of-origin) and the firm’s home-country institutional variables (accounting rating and legal protection of minority shareholders) condition this choice. We also examine the issuing activity and the determinants of the ADR choice before and after the enactment of the Sarbanes–Oxley (SOX) Act. Following this structural change, we provide evidence of a reallocation between ADR programs. Compared to the pre-SOX period, firms from emerging markets, and those from countries with weak legal protection of minority shareholders, are more likely after SOX to choose Rule 144A and Level III, respectively.

This paper investigates the effects of privatization for a panel of 189 firms from strategic industries headquartered in 39 countries, and privatized between 1984 and 2002. Strategic firms can hardly be compared to manufacturing or competitive industries as they are generally under state monopoly, and involve specific issues such as regulation, political and institutional constraints. We examine the change in ownership and postprivatization means of control by the government, and assess whether positive changes in performance obtain in these particular industries that include firms from the financial, mining, steel, telecommunications, transportation, utilities, and oil sectors. We document that governments continue to exert influence on former state-owned firms after three years by retaining golden shares and/or appointing politicians to key positions in the firm. Our multivariate results reveal a negative effect of state ownership on profitability and operating efficiency, which the presence of a sound institutional and political environment moderates.

This paper examines the link between globalization-measured by foreign direct investment (FDI) and foreign portfolio investment (FPI) – and privatization of state-owned enterprises, in a multi-country sample that focuses on developing countries. We hypothesize that privatization has an effect on FDI/FPI as the process of fostering private sector participation is often accompanied by liberalization reforms, and by allocations of substantial shares of newly privatized firms to foreign investors. Similarly, we expect FDI/FPI to foster privatization efforts as new capital inflows, technology and managerial skills that accompany FDI/FPI make the environment more prone to competition, providing governments with incentives to privatize inefficient firms that need to be turned around. This relation is assessed in two ways, first in a dynamic panel using a generalized method of moments approach, and second through panel causality tests. We find a bi-directional positive relation between privatization proceeds and globalization, particularly in the case of FDI.

We examine the postprivatization performance of 81 banks from 22 developing countries. Our results suggest that: (i) On average, banks chosen for privatization have a lower economic efficiency, and a lower solvency than banks kept under government ownership. (ii) In the postprivatization period, profitability increases but, depending on the type of owner, efficiency, risk exposure and capitalization may worsen or improve. However, (iii) Over time, privatization yields significant improvements in economic efficiency and credit risk exposure. (iv) We also find that newly privatized banks that are controlled by local industrial groups become more exposed to credit risk and interest rate risk after privatization.