Opportunistic privatization

Vladan Ivanović, Luca J. Uberti and Drini Imami

European Journal of Political Economy, 2023, vol. 80, issue C

Abstract: In the run-up to elections, self-interested politicians use privatization opportunistically to buy votes and increase their probability of re-election. When state-owned firms are privatized, politicians use (implicit) subsidies to persuade managers to choose inefficient but politically beneficial strategies such as excess employment. Under plausible assumptions, politicians have a strict preference for privatization over state ownership in the run-up to elections. We test these predictions using a unique dataset covering the full population of former socially owned enterprises in post-Milošević Serbia (2002–2019). We report robust conditional correlations consistent with our theory. Privatization sales and revenues increase significantly in pre-election periods. The firms privatized before elections are sold at a lower price, and exhibit higher total costs after privatization, than otherwise similar privatized firms. They also have a higher probability of bankruptcy and, conditional on surviving, achieve lower profitability than otherwise similar privatized firms. These findings highlight the link between privatization, elections and corruption, and point to the need for monitoring, or even suspending, privatization sales during election periods.

Keywords: Privatization; Elections; Corruption; Collusion; Cooperative games; Stochastic frontier analysis (search for similar items in EconPapers)
JEL-codes: C71 C78 D72 D73 L33 (search for similar items in EconPapers)
Date: 2023
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Persistent link: https://EconPapers.repec.org/RePEc:eee:poleco:v:80:y:2023:i:c:s0176268023001234

DOI: 10.1016/j.ejpoleco.2023.102479

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