Privatisation Prices: the Role of Prior Restructuring and Emerging Private Ownership Structure.

José Eusébio Santos (University of Madeira)

Abstract: We investigate the impact of restructuring policies before sale and resulting private ownership structures on privatisation sales prices. We use a new dataset of companies privatised in Brazil between 1991 and 2004, covering 118 transactions observed in the period. Our results show that, after controlling for endogeneity, replacing the CEO is associated with an increase in privatisation net prices. Efficiency measures aimed at improving operating performance of the firms and voluntary labour downsizing schemes fail to improve premiums. On the other hand, restructuring measures such as debt absorption and compulsory labour downsizing schemes have a significant negative impact on net prices. We also find that prices are very sensitive to the level of competition in the auction and that the longer it takes to put the company on the block the lower the premium obtained. Finally, prices are shown to depend upon the resulting ownership structures. The more concentrated private ownership is, the higher prices are. Identity of owners on concentration is also shown to matter as domestic institutions and local corporations are associated with higher prices, while employee ownership concentration has a negative impact on premiums. This case suggests conflicts of interest.

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