The Choice of Private Versus Public Capital Markets: Evidence from Privatizations






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    • Megginson is at the University of Oklahoma and a member of the Global Advisory Committee on Privatization (Italy), Nash is at Wake Forest University, and Netter and Poulsen are at the University of Georgia. This paper has benefited from comments from Chris Anderson, Bernardo Bortolotti, Narjess Boubakri, Francesca Cornelli, Jean-Claude Cossett, Rick Green, Nandini Gupta, Tom Krantz, Elena Miteva, Enrico Perotti, René Stulz, Jan Svejnar, Sheridan Titman, Henk von Eije, an anonymous referee, and conference participants at the 1998 Allied Social Sciences Association meeting, the 1998 Financial Management Association meeting, the 2000 ABN-AMRO International Conference on Initial Public Offerings, the 2000 CIFRA/London Business School Conference on Emerging Market Finance, the 2001 Groningen University Conference on Privatization, the Third Annual International Business Forum at Temple University (March 2002), the 2002 Global Finance Conference at Peking University (May 2002), and the 2002 European Financial Management Association meeting. Additionally, we have received valuable feedback from seminar participants at the 1998 NYSE/Paris Bourse Global Equity Markets conference (Paris), the 1999 Conference on Privatization and the Kuwaiti Economy in the Next Century (Kuwait City), the 2000 Harvard Privatization Workshop, the International Federation of Stock Exchanges (FIBV) 40th Annual Meeting (Brisbane, October 2000), the 2001 World Bank/Princeton University Privatization Workshop, the Fondazione ENI Enrico Mattei (Milan), the Swiss Banking Institute (Zurich), the University of Michigan's William Davidson Institute, Laval University, Michigan State University, the University of Nevada-Las Vegas, the University of Oklahoma, the University of Tennessee, Texas A&M University, Vanderbilt University, Washington State University, the City University Business School (London), the London Guildhall University, the Organization for Economic Cooperation and Development (Paris), the International Monetary Fund, World Bank, International Finance Corporation, and World Bank Institute (all in Washington, D.C.). The assistance of the OECD and FIBV in collecting supplementary information and data is also gratefully acknowledged. All remaining errors are the authors' alone.


We examine the impact of political, institutional, and economic factors on the choice between selling a state-owned enterprise in the public capital market through a share issue privatization (SIP) and selling it in the private capital market in an asset sale. SIPs are more likely in less developed capital markets, for more profitable state-owned enterprises, and where there are more protections of minority shareholders. Asset sales are more likely when there is less state control of the economy and when the firm is smaller. Our results suggest the importance of privatization activities in developing the equity markets of privatizing countries.