The Political Economy of State Residual Ownership in Privatized Firms : Evidence from Emerging Markets

We investigate the control structure of 221 privatized firms from 27 emerging countries over the period 1980 to 2001. Specifically, we examine the determinants of residual state ownership after privatization over a window of up to six years after divestiture. We find that the residual state ownership is largely influenced by the size of the firm, the level of investor protection and the extent of corruption in the country. Controlling for the political institutions in place increases the explanatory power of the models, and shows that government tenure (stability), the political system and political cohesion are also important determinants of the residual state ownership in newly privatized firms. This result confirms that privatization is politically shaped and constrained, and hence obeys to a dynamic that is different from one country to another