Ownership structure, monitoring, and market value of companies: evidence from an unusual privatization mode

Bartosz Gebka

International Review of Applied Economics, 2014, vol. 28, issue 5, 586-610

Abstract: This study analyses the impact of ownership structure and market liquidity on company value. We investigate different aspects of ownership: the risk of political interference, private investors vs. the state acting as influential blockholders, and preferential political treatment of companies. Using a unique dataset of Polish partial privatizations initiated by shares transfers to entities under limited government influence, we find that government divestments can enhance company value, due to reduction in risk of political interference. A potential increase in the liquidity of trades in transferred companies' shares also boosts their market value. On the other hand, an increased likelihood of the emergence of private blockholders able to expropriate minority shareholders reduces the firm's market value. Our results support the political view of privatization: governments have objectives different to profit maximization, which leads to suboptimal investment from this point of view and lower market value of companies. We also develop a model to empirically distinguish between different aspects of ownership on company value.

Date: 2014
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DOI: 10.1080/02692171.2014.918938

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