Can company disclosures discipline state-appointed managers? Evidence from Greek privatizations

Theoretical Inquiries in Law

Volumn 13, Issue 2, 2012, Pages 525-566

  Gadinis, Stavros ^a  

^a UNIVERSITY OF CALIFORNIA   (United States)

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[No Author keywords available]

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EID: 84870171525     PISSN: None     EISSN: 15653404     Source Type: Journal    
DOI: 10.1515/1565-3404.1304     Document Type: Article

References (34)

1. See OECD, Economic Surveys - Greece 65 (2011).
2. See Dimitris Kontogiannis, Papandreou Fights to Convince on Austerity, Fin. Times, Sep. 20, 2011, at 4.
3. See Kerin Hope & Ralph Atkins, Greek Unions Stage Mass Strike, Fin. Times, Jun. 28, 2011, http://www.ft.com/intl/cms/s/0/5edd7a5c-a16e-11e0-baa8- 00144feabdc0.html#axzz1j34IIgsC.
4. See George Pagoulatos, The Politics of Privatisation: Redrawing the Public- Private Boundary, 28 W. Eur. Pol. 358, 363-64 (2005).
5. Costas Simitis, the then Greek Prime Minister, stated with regard to sales of minority stakes through the stock exchange: "Privatization is not an end in itself. We do not sell public companies to simply get rid of them. Privatization is a process that helps the market work better, that helps the company to operate more efficiently, that introduces greater competition." He also noted that public companies would undergo "modernization and restructuring" before the sale of a stake to shareholders. See Costas Simitis, Public Statement (June 30, 2000), available at http://archive.enet.gr/ 2000/06/30/on-line/keimena/economy/fin1. htm (Greece) (translated from the Greek by the author).
6. Subjecting state-owned enterprises to market discipline was a key motivation for privatization. For a brief history of privatization, see William Megginson, Privatization and Finance, 2010 Ann. Rev. Fin. Econ. 145, 149.
7. See Jea n-Jac ques Laffo nt & Jea n Tirole, A Theo ry of Ince ntives in Proc urement and Regulat ion 637 (1993).
8. Thus, privatizations through local stock exchanges bolster interest in many countries' equity markets and help build a viable financing alternative for private firms from these countries, see William L. Megginson & Jeffry M. Netter, From State to Market: A Survey of Empirical Studies on Privatization, 39 J. Eco n. Lit. 321, 372-74 (2001);
9. see also Steven L. Jones et al. Share Issue Privatizations as Financial Means to Political and Economic Ends, 53 J. Fin. Eco n 217 1999) (providing empirical evidence on the various goals governments may pursue through stock exchange-driven privatizations). Moreover, privatized companies that count foreign investors among their shareholders generally experience higher performance improvements
10. see, e.g., Simeon Djankov The Determinants of Enterprise Restructuring in Six Newly Independent States, 41 Comp. Econ. Stud 75 79 (1999).
11. See Joseph E. Stiglitz, Globalizat ion and Its Discontents 23 (2002).
12. An extensive literature links the decision to privatize with corruption. For an early empirical account, see Daniel Kaufmann & Paul Siegelbaum, Privatization and Corruption in Transition Economies, 50 J. Int'l Affa irs 419 (1997). For a recent theoretic piece
13. see David Martimort & Stéphane Straub, Infrastructure Privatization and Changes in Corruption Patterns: The Roots of Public Discontent, 90 J. Dev. Econ. 69 (2009).
14. See Bernard Black, Reinier Kraakman & Anna Tarassova, Russian Privatization and Corporate Governance: What Went Wrong?, 52 Sta n. L. Rev. 1731, 1735 (2000).
15. see Kjetil Bjorvatn & Tina SØreide, Corruption and Privatization, 21 Eur. J. Pol. Econ. 903, 905 (2005).
16. See Saul Estrin et al., Effects of Privatization and Ownership in Transition Economies, 47 J. Eco n. Lit. 699, 703 (2009);
17. See Nandini Gupta, Partial Privatization and Firm Performance, 60 J. Fin. 987, 990 (2005).
18. See generally Andrei Shleifer & Robert W. Vishny, Politicians and Firms, 109 Q.J. Eco n. 995 (1994) (arguing that transfers from managers to politicians emerge naturally in state-owned enterprises).
19. See generally Andrei Shleifer, State Versus Private Ownership (NBER, Working Paper No. w6665, 1998), available at http://ssrn.com/abstract=226357 (arguing that private ownership should be generally preferable to public ownership when the incentives to innovate are strong).
20. For support of the efficient market hypothesis, see Eugene F. Fama, Efficient Capital Markets: A Review of Theory and Empirical Work, 25 J. Fin. 383 (1970).
21. See generally Eugene F. Fama, Agency Problems and the Theory of the Firm, 88 J. Pol. Econ. 288 (1980) (describing the role of a market for executives as a disciplining mechanism).
22. See generally Varouj A. Aivazian, Ying Ge & Jiaping Qiu, Can Corporatization Improve the Performance of State-Owned Enterprises Even Without Privatization?, 11 J. Corp. Fin. 791 (2005) (arguing that just corporatization, even without privatization, improved the performance of SOEs in China, and showing that improved efficiency was due to reforms in the internal governance structure of the firm).
23. It is true that the management of privatized firms maintains strong political connections, see Narjess Boubakri, Jean-Claude Cosset & Walid Saffar, Political Connections of Newly Privatized Firms, 14 J. Corp. Fin. 654 (2008) (noting that eighty-seven out of 245 firms in their sample had a politician or ex-politician on their board of directors).
24. For an argument on how public disclosures can constrain bank managers, see generally Robert Bartlett, Making Banks Transparent, 65 Vand. L. Rev. (forthcoming 2012).
25. Cf. Enrico C. Perotti, Credible Privatization, 85 Am. Eco n. Rev. 847, 848 (1995) (seeing partial privatization as a mechanism for credible commitment on behalf of the government, but emphasizing the government's intention to avoid imposing heavy regulation on the company after selling it off).
26. See generally George Pagoulatos, The Enemy Within: Intragovernmental Politics and Organizational Failure in Greek Privatization, 79 Pub. Admin. 125 (2001) (describing how the two ministries with powers over privatization, the National Economy Minister and the Industry Minister, often split ways over various privatization proposals, including OTE's).
27. See OTE, Offering Circular 51 (1997).
28. See, e.g., OTE, Form 20-F, at 104 (2005).
29. Pub. Powe r Corp., Annual Repo rt 2009, at 10 (2010) (Greece), available at http://www.dei.gr/Documents/DEH%20Deltio%202009%20ENG%20gray.pdf.
30. See Gen. Inspecto r of Pub. Admin., Report on PPC Inspection Regarding the Legality of PPC Financial Support/Subsidies Towa rds the PPC Labor Union 53 (2011).
31. According to press reports, the cost of these payments exceeded 5,000,000,000 in aggregate in the last decade, see, e.g., Constantine N. Stabolis, The Hurdles in Energy Privatizations, Imerisia, May 5, 2011, http://www.imerisia.gr/article.asp?catid=12338&subid=2&pubid=111073182.
32. See OPAP, Prospectus 192 (2001).
33. See OPAP, Prospectus 183-84 (2005).
34. See OPAP, Prospectus 84 (2001).