Government ownership and the cost of debt: Evidence from government investments in publicly traded firms

Ginka Borisova, Veljko Fotak, Kateryna Holland and William L. Megginson

Journal of Financial Economics, 2015, vol. 118, issue 1, 168-191

Abstract: We investigate how government equity ownership in publicly traded firms affects the cost of corporate debt. Using a sample of bond credit spreads from 43 countries over 1991–2010, we find that government ownership is generally associated with a higher cost of debt, consistent with state-induced investment distortions, but is associated with a lower cost of debt during financial crises and for firms more likely to be distressed, when implicit government guarantees become the dominant effect. Our results are robust to controls for the endogeneity of government ownership, and we find these effects to be specific to domestic government ownership.

Keywords: Privatization; Government ownership; Bonds; Cost of debt (search for similar items in EconPapers)
JEL-codes: G32 G38 H11 H81 L33 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (122)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:118:y:2015:i:1:p:168-191

DOI: 10.1016/j.jfineco.2015.06.011

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