IPD AI Insights

Ownership Changes and Access to External Financing

12/27/2008
Working Paper
Global Governance

This paper examines access to external financing in the privatization context and provides new evidence on the effects of financing constraints on performance and investment.

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Ownership reforms increase firms’ reliance on external financing. Empirically, performance and investment changes around ownership reforms are increasing in country-level measures of access to credit. The presence of a severe prior public financing constraint contributes to stronger investment growth after privatization. Privatized enterprises do not outperform publicly owned industries, all else given. Our analyses rely on new international sector- and firm-level data and correct for potential endogeneity of ownership changes.