Determinants of Privatization Prices

Florencio Lopez-de-Silanes ()

The Quarterly Journal of Economics, 1997, vol. 112, issue 4, 965-1025

Abstract: Generating government revenue is a common objective in privatization. This paper asks what determines privatization prices using firm-level data for all 236 Mexican companies privatized between 1983 and 1992. There are three main reasons why net prices—auction prices net of the cost of prior restructuring measures—are low, averaging 54 cents per dollar of assets. First, privatization prices are very sensitive to the level of competition in the auction and restrictions often limited participation. Second, the privatization process took too long, and lengthier privatizations are associated with lower premiums. Third, firm prior restructuring measures absorbed an average of 33 percent of the auction price. Most restructuring measures do not increase price and delay privatization further. Net prices would have increased by 71 cents per dollar of assets if the government had emphasized speed, succeeding in divesting assets in one year less than the average, and firing the CEO were the only restructuring step taken.

Date: 1997
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