A Cure Rather than a Disease: Government Ownership and Minority Shareholder Protection

Miletkov, Mihail K.

Volume 18, Numbers 1 & 2 / March/June , Pages 1-167

Multinational Finance Journal, 2014, vol. 18, no. 1/2, pp. 1-41

Mihail K. Miletkov , University of New Hampshire, USA Corresponding Author

Abstract:
The governments which undertake privatization of their state owned enterprises often maintain some ownership in the newly privatized firms. This paper examines the effect of the presence of the government as a minority shareholder on the protection of the minority shareholders in privatized firms. Consistent with the government’s incentive to foster security market development and to enlist the support of the median-class voters for the privatization process we find that the government effectively monitors the controlling shareholders in the newly privatized firms and curbs their ability to expropriate the minority shareholders. Furthermore, the evidence suggests that minority government ownership acts as a substitute for the lack of alternative mechanisms for minority shareholder protection.

Keywords : privatization; private benefits of control; government ownership; investor protection
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