Public ownership and control in the private sector

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Ownership concentration:'Private benefits of control' and debt financing

Building on the ‘law and economics’ literature, this paper analyses corporate governance implications of debt financing in an environment where a dominant owner is able to extract ex ante ‘private benefits of control’. Ownership concentration may result in lower efficiency, measured as a ratio of a firm’s debt to investment, and this effect depends on the identity of the largest shareholder. Moreover, entrenched dominant shareholder(s) may be colluding with fixed-claim holders in extracting ‘control premium’. One of possible outcomes is a ‘crowding out’ of entrepreneurial firms from the debt market, and this is supported by evidence from the transition economies.

Privatisation, state ownership and productivity:evidence from China

This paper examines the relationship between the transfer of ownership between the public and private sectors of Chinese industry, and its impacts on performance. We link ownership changes to productivity growth, and demonstrate that privatisation contributes significantly. We offer an extension that is generally ignored in the literature, in looking at firms that are taken back into state ownership, and evaluating the productivity growth effects of this. Further, we highlight the well-understood simultaneity problems, and demonstrate the hazard of ignoring the issue by comparing various estimators, including the modified control function approach. In general, the results stress the importance of allowing for such endogeneity when evaluating the productivity effects of ownership change.

Registered social landlords: private enterprise (f)or public good?

Millions of homes previously owned by councils have been transferred to the ownership of registered social landlords. Many of these are run as private companies under the principles first set out in the Combined Code of Corporate Governance. This articled considers whether it is appropriate to apply both the principles of the Code and regulation from the Housing Corporation as forms of control over such companies, and whether extensive government regulation negates the requirement for a board comprising independent directors expected to make strategic decisions while overseeing the executive. Conflict is created when trying to run these companies with a unitary board structure adhering to Combined Code principles while considering the wider interests of the community. It is questioned whether it is inefficient to try to meet these two objectives simultaneously and whether this system produces the best results for the community, the lenders and the end users.

Modelling trade offs between public and private conservation policies

To reduce global biodiversity loss, there is an urgent need to determine the most efficient allocation of conservation resources. Recently, there has been a growing trend for many governments to supplement public ownership and management of reserves with incentive programs for conservation on private land. This raises important questions, such as the extent to which private land conservation can improve conservation outcomes, and how it should be mixed with more traditional public land conservation. We address these questions, using a general framework for modelling environmental policies and a case study examining the conservation of endangered native grasslands to the west of Melbourne, Australia. Specifically, we examine three policies that involve i) spending all resources on creating public conservation areas; ii) spending all resources on an ongoing incentive program where private landholders are paid to manage vegetation on their property with 5-year contracts; and iii) splitting resources between these two approaches. The performance of each strategy is quantified with a vegetation condition change model that predicts future changes in grassland quality. Of the policies tested, no one policy was always best and policy performance depended on the objectives of those enacting the policy. Although policies to promote conservation on private land are proposed and implemented in many areas, they are rarely evaluated in terms of their ecological consequences. This work demonstrates a general method for evaluating environmental policies and highlights the utility of a model which combines ecological and socioeconomic processes.

Does lending behaviour of banks in emerging economies vary by ownership? Evidence from the Indian banking sector

While much has been discussed about the relationship between ownership and financial performance of banks in emerging markets, literature about cross-ownership differences in credit market behaviour of banks in emerging economies is sparse. Using a portfolio choice model and bank-level data from India for 9 years (1995–96 to 2003–04), we examine banks’ behaviour in the context of credit markets of an emerging market economy. Our results indicate that, in India, the data for the domestic banks fit well the aforementioned portfolio-choice model, especially for private banks, but the model cannot explain the behaviour of foreign banks. In general, allocation of assets between risk-free government securities and risky credit is affected by past allocation patterns, stock exchange listing (for private banks), risk averseness of banks, regulations regarding treatment of NPA, and ability of banks to recover doubtful credit. It is also evident that banks deal with changing levels of systematic risk by altering the ratio of securitized to non-securitized credit.

How important is ownership in a market with a level playing field? The Indian banking sector revisited

Private ownership of firms is often argued to lead to better firm performance than public ownership. However, the theoretical literature and the empirical evidence indicate that agency problems may affect the performance of privately owned firms. At the same time, competition and hard budget constraints can induce state-owned firms to operate efficiently. In India, banking sector reforms and deregulation were initiated in 1992, encouraging entry and establishing a level playing field for all banks. Data for the financial years 1995–1996 through 2000–2001 suggest that, by 1999–2000, ownership was no longer a significant determinant of performance. Rather, competition induced public-sector banks to eliminate the performance gap that existed between them and both domestic and foreign private-sector banks.

Does ownership always matter? Evidence from the Indian banking industry

Existing empirical evidence on the ownership-performance issue is weighted towards the property rights hypothesis that private enterprises are superior to public enterprises. However, very few studies examine a developing country in which the strong link between the market for corporate control and the efficiency of private enterprises assumed by the property rights hypothesis may not be satisfied. Our study of the Indian banking industry confirms our expectation that, in the absence of well-functioning capital markets, there may not be significant differences in the performance of private and public enterprises. Our analysis highlights the importance of creating appropriate institutions prior to pursuing privatization in developing countries.

Ownership structure and investment finance in transition economies:a survey of evidence from large firms in Hungary and Poland

Using survey data on 157 large private Hungarian and Polish companies this paper investigates links between ownership structures and CEOs’ expectations with regard to sources of finance for investment. The Bayesian estimation is used to deal with the small sample restrictions, while classical methods provide robustness checks. We found a hump-shaped relationship between ownership concentration and expectations of relying on public equity. The latter is most likely for firms where the largest investor owns between 25 percent and 49 percent of shares, just below the legal control threshold. More profitable firms rely on retained earnings for their investment finance, consistent with the ‘pecking order’ theory of financing. Finally, firms for which the largest shareholder is a domestic institutional investor are more likely to borrow from domestic banks.

State advances and private retreats? Evidence from the decomposition of the Chinese manufacturing aggregate productivity decomposition in China

This paper is motivated by the recent debate on the existence and scale of China's 'Guo Jin Min Tui' phenomenon, which is often translated as 'the state sector advances and the private sector retreats'. We argue that the profound implication of an advancing state sector is not the size expansion of the state ownership in the economy per se, but the likely retardation of the development of the already financially constrained private sector and the issues around the sustainability of the already weakening Chinese economy growth. Drawing on recent methodological advances, we provide a critical analysis of the contributions of the state and non-state sectors in the aggregate Total Factor Productivity and its growth over the period of 1998-2007 to verify the existence of GJMT and its possible impacts on Chinese economic growth. Overall, we find strong and consistent evidence of a systematic and worsening resource misallocation within the state sector and/or between the state sectors and private sectors over time. This suggests that non-market forces allow resources to be driven away from their competitive market allocation and towards the inefficient state sector. Crown Copyright © 2014.

Low-emission vehicle adoption in a UK local authority fleet:economic barriers and air quality benefits

Local air quality was one of the main stimulants for low carbon vehicle development during the 1990s. Issues of national fuel security and global air quality (climate change) have added pressure for their development, stimulating schemes to facilitate their deployment in the UK. In this case study, Coventry City Council aimed to adopt an in-house fleet of electric and hybrid-electric vehicles to replace business mileage paid for in employee's private vehicles. This study made comparisons between the proposed vehicle technologies, in terms of costs and air quality, over projected scenarios of typical use. The study found that under 2009 conditions, the electric and hybrid fleet could not compete on cost with the current business model because of untested assumptions, but certain emissions were significantly reduced >50%. Climate change gas emissions were most drastically reduced where electric vehicles were adopted because the electricity supply was generated by renewable energy sources. The study identified the key cost barriers and benefits to adoption of low-emission vehicles in current conditions in the Coventry fleet. Low-emission vehicles achieved significant air pollution-associated health cost and atmospheric emission reductions per vehicle, and widespread adoption in cities could deliver significant change. © The Author 2011. Published by Oxford University Press. All rights reserved.