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State Ownership and Debt Choice: Evidence from Privatization

Published online by Cambridge University Press:  07 September 2018

Narjess Boubakri  and
Walid Saffar
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Abstract

Using a large sample of privatized firms, we find that state ownership is significantly positively associated with the use of bank debt financing, suggesting that privatized firms benefit from the soft budget constraint associated with state ownership. We further find that the relation is more pronounced in countries with high government ownership of banks, high corruption in bank lending, a left-oriented government, and a collectivist national culture, which provides additional support for the soft-budget-constraint view. Finally, in external validity tests, we find that state ownership affects other aspects of debt structure, such as debt maturity and debt security.

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Type
Research Article
Information
Journal of Financial and Quantitative Analysis , Volume 54 , Issue 3 , June 2019 , pp. 1313 - 1346
Copyright
Copyright © Michael G. Foster School of Business, University of Washington 2018 

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Footnotes

1

We gratefully acknowledge the helpful comments on an earlier version of this article from Sabri Boubaker, Yangyang Chen, C. S. Agnes Cheng, Sadok El Ghoul, Bill Francis, Omrane Guedhami, Ferdinand Gul, Iftekhar Hasan, Karen Lai, Paul Malatesta (the editor), William Megginson (the referee), Mujtaba Mian, Jeffrey Ng, Zabihollah Rezaee, Joshua Ronen, Samir Saadi, and Samir Trabelsi. Our article has also benefited from comments from seminar participants at the City University of Hong Kong, Chinese University of Hong Kong, HEC Montreal, the Hong Kong Polytechnic University, the American University of Sharjah, Champagne School of Management, Deakin University, Monash University, IPAG Business School, and the 2017 Paris Financial Management Conference.

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