Testing limits to policy reversal: Evidence from Indian privatizations

Siddhartha G. Dastidar, Raymond Fisman and Tarun Khanna

Journal of Financial Economics, 2008, vol. 89, issue 3, 513-526

Abstract: We examine the effect of regime change on privatization. In the 2004 Indian election, the pro-reform BJP was unexpectedly defeated by a less reformist coalition. Stock prices of government-controlled companies that had been slated for privatization by the BJP dropped 3.5% relative to private firms. Government-controlled companies that were under study for possible privatization fell 7.5% relative to private firms. This is consistent with investor belief of a "point of no return," where advanced reforms are more difficult to reverse. Further analysis suggests that layoffs, combined with the privatization announcement, served as a credible commitment to privatize.

Keywords: Government; commitment; Layoffs; Emerging; markets; Electoral; turnover; Government; policy; credibility (search for similar items in EconPapers)
Date: 2008
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Citations: View citations in EconPapers (5)

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Working Paper: Testing Limits to Policy Reversal: Evidence from Indian Privatizations (2007)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:jfinec:v:89:y:2008:i:3:p:513-526

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