YOU ARE ONE OF US NOW! HOW DO SHARE PRICES OF RIVALS REACT TO PRIVATIZATION?

Authors


  • *We are grateful to two anonymous referees and the Editor for extraordinarily helpful comments. We would also like to thank Henk Berkman, Jack Broughton, Hsin-Hui Chiu, Charles Corrado, Grigori Erenburg, Carter Hill, Morten Hviid, Paul Koch, Steffen Lippert, Pinar Ozbay-Ozlu, Otto Reich, Can Uslay, conference participants of the 2006 ASSA meetings in Boston, U.S.A.; conference participants of the 2006 ICEBM conference in Cesme, Turkey and seminar participants at Massey university for their valuable suggestions. The usual disclaimer applies.

Abstract

By using a unique data set from the Turkish cement industry, we analyze the impact of privatization on the market value of rival firms. Privatization increases efficiency, which is bad news for rivals. But if an incumbent buys a state owned firm, this leads to a higher market concentration which is good news for rivals. We show that privatization leads to overall positive abnormal returns for rivals because the concentration effect outweighs the efficiency effect. Consistent with our theory, this effect is reinforced when the initial market concentration is high.

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