Determinants of Privatization Prices / Florencio Lopez-de-Silane.

By:

Lopez-de-Silane, Florencio

Contributor(s):

National Bureau of Economic Research

Material type: Text

TextSeries: Working Paper Series (National Bureau of Economic Research) ; no. w5494.Publication details: Cambridge, Mass. National Bureau of Economic Research 1996.Description: 1 online resource: illustrations (black and white)Online resources:

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Abstract: Generating government revenue is a common objective in privatization. This paper asks: what determines privatization prices? Pursuing this query helps resolve the current controversies about the bearing of speed and the role for government actions prior to privatization. The data, gathered from primary sources, encompass 361 privatized Mexican companies in 49 four-digit industry codes. The determinants of auction privatization prices are divided into three groups: (1) company performance and industry parameters; (2) the auction process and its requirements; and (3) the prior restructuring actions taken by the government. Controlling for company and industry effects reveals the significant impact of the costs and characteristics of the labor force. Minority control packages carry large discounts. Auction requirements that allow foreign investors result in higher sale premia, while restrictions constraining participation or payment forms reduce net prices. The speed of privatization substantially influences net prices: the longer it takes to put the company on the block, the more severe the deterioration in performance, and the lower the premium obtained. Pre-sale reductions in labor force, and particularly the firing of CEOs, lead to significantly higher premiums. Debt absorption, investment, and performance improvement programs do not increase the net price, while de-investment measures prove more beneficial. Overall, the results show increased premia for government actions that stimulate bidder participation and expedite the privatization process.

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Previous	nber w5491 "Globalization and Inequality Past and Present" /	nber w5492 Cross-State Variation in Medicaid Programs and Female Labor Supply /	nber w5493 Compensation Structure and Product Market Competition /	nber w5494 Determinants of Privatization Prices /	nber w5495 Explaining Domestic Content: Evidence from Japanese and U.S. Auto Production in the U.S. /	nber w5496 Rational Capital Budgeting in an Irrational World /	nber w5497 Getting Pegged: Comparing the 1879 and 1925 Gold Resumptions /	Next

March 1996.

Generating government revenue is a common objective in privatization. This paper asks: what determines privatization prices? Pursuing this query helps resolve the current controversies about the bearing of speed and the role for government actions prior to privatization. The data, gathered from primary sources, encompass 361 privatized Mexican companies in 49 four-digit industry codes. The determinants of auction privatization prices are divided into three groups: (1) company performance and industry parameters; (2) the auction process and its requirements; and (3) the prior restructuring actions taken by the government. Controlling for company and industry effects reveals the significant impact of the costs and characteristics of the labor force. Minority control packages carry large discounts. Auction requirements that allow foreign investors result in higher sale premia, while restrictions constraining participation or payment forms reduce net prices. The speed of privatization substantially influences net prices: the longer it takes to put the company on the block, the more severe the deterioration in performance, and the lower the premium obtained. Pre-sale reductions in labor force, and particularly the firing of CEOs, lead to significantly higher premiums. Debt absorption, investment, and performance improvement programs do not increase the net price, while de-investment measures prove more beneficial. Overall, the results show increased premia for government actions that stimulate bidder participation and expedite the privatization process.