Working Paper: CEPR ID: DP4871
Authors: Pehr-Johan Norbck; Lars Persson
Abstract: This Paper examines the restructuring of state assets in markets deregulated by privatizations and investment liberalizations. We show that a net revenue maximizing government has a stronger incentive to restructure than a profit maximizing acquiring firm: A restructuring firm only takes into account how much its own profit will increase. The government internalizes that restructuring increases the sales price not only due to the increase in the acquirer's profit, but also due to a reduced profit for the non-acquirer, whose profits decrease due to its rival's restructuring. We also identify situations where a slow sale can significantly reduce the sales price because of strategic investment and product market effects.
Keywords: asset ownership; oligopoly; privatization; restructuring
JEL Codes: D44; L13; L33; L40; P31
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Net revenue maximizing government (H27) | Stronger incentive to restructure state assets (G32) |
| Stronger incentive to restructure state assets (G32) | Increase in acquirer's profit (G34) |
| Stronger incentive to restructure state assets (G32) | Decrease in non-acquirer's profit (G34) |
| Restructuring (G33) | Significant reduction in sales price (D49) |
| Prolonged sale process due to strategic investments (D25) | Significant reduction in sales price (D49) |