"Testing limits to policy reversal: Evidence from Indian privatizations"
Journal of Financial Economics,
Volume: 89 | Issue: 3 | Pages: 513-526
Publication type: Journal article
We examine the effect of regime change on privatization. In the 2004 Indian election, the pro-reform BJP was unexpectedly defeated by a less reformist coalition. Stock prices of government-controlled companies that had been slated for privatization by the BJP dropped 3.5% relative to private firms. Government-controlled companies that were under study for possible privatization fell 7.5% relative to private firms. This is consistent with investor belief of a "point of no return," where advanced reforms are more difficult to reverse. Further analysis suggests that layoffs, combined with the privatization announcement, served as a credible commitment to privatize.
The PDF above is a preprint version of the article. The final version may be found at < http://dx.doi.org/10.1016/j.jfineco.2007.09.002 >.
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