Privatization and Finance

This paper summarizes research examining how privatization programs implemented by governments over the past three decades have changed the size and efficiency of global financial markets, altered the practice of corporate finance in economies that experienced large privatizations, and impacted the returns earned by individual investors who purchased stock in a privatized company. I show how sales programs have changed during the three historical eras of privatization, describe the principal methods that governments use to sell state-owned enterprises (SOEs) to private investors, and examine how governments choose between selling SOEs directly to existing operating companies or investor groups through direct sales (asset sales) and selling stock to investors through share issue privatizations (SIPs). I document and examine the role privatization has played in increasing the total market capitalization of global stock exchanges from $3.2 trillion in 1983 to over $62 trillion in 2007. I show that investors have benefited from purchasing SIP shares, both in the short and long term, and attempt to answer the critical question: What do governments have left to sell?