Reluctant privatization

We study the evolution of the control structure for a large sample of privatized firms in OECD countries and find evidence broadly consistent with the concept of "reluctant privatization", defined as the transfer of ownership rights in State-owned enterprises without a corresponding transfer of control rights. Indeed, as of 2000, governments are the largest shareholder or use special control powers to retain voting control of 62.4% of privatized firms. However, contrary to accepted theory, greater government control over privatized firms does not negatively affect market valuation. In fact, government stakes are positively and significantly related to peer-adjusted market-to-book ratios. Results are not driven by the choice of the benchmark, reverse causality or by agency costs associated with private ownership. Rather, it appears that the relationship documented reflects more frequent financial aid (bailouts) accruing to privatized firms that remain under government control.