Date of Award

2017

Document Type

Open Access Dissertation

Department

Moore School of Business

Sub-Department

Business Administration

First Advisor

Omrane Guedhami

Second Advisor

Chuck Kwok

Abstract

This dissertation examines the impact of state ownership on corporate policies in the context of privatization. The first essay provides new evidence about the agency costs of state ownership on corporate cash holdings and new insight into the corporate governance role of country-level institutions. Consistent with agency theory, we find strong and robust evidence that state ownership is positively related to corporate cash holdings. Moreover, we find that the strength of country-level institutions affects the relation between state ownership and the value of cash holdings. In particular, as state ownership increases, markets discount the value of cash holdings more in countries with weaker institutions.

The second essay examines the relation between state ownership, stock liquidity, and firm value. We first find that newly privatized firms, on average, are more liquid than other listed firms. However, partially privatized firms are more liquid than fully privatized counterparts. Both of these results suggest a non-linear relation between state ownership and stock liquidity. We find empirical support for this conjecture and the soft budget constraint associated with state ownership. We further find that the relation between state ownership and liquidity is stronger in countries with higher levels of state ownership of banks, and is weaker in countries with fewer limits on foreign banks and little or no political influence as measured by the independence of the supervisory authority. Finally, we show that stock liquidity is related to firm value and cost of equity capital, suggesting that liquidity is a channel through which residual state ownership in NPFs affects valuation.

The third essay examines the impact of state ownership on trade credit provisions. We find strong evidence that state ownership is positively associated with trade credit. This positive relation between state ownership and trade credit is stronger in countries with poorly developed financial markets, suggesting that implicit borrowing in forms of trade credit from state-owned enterprises provides an alternative source of funds for firms with little access to finance. Contrary to the price discrimination theory, which predicts that firms extend trade credit to extract marginal profit, we find that state ownership is more likely to provide trade credit in competitive industries. Moreover, we find that the market discounts the value of trade credit in the presence of state ownership.

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