Journal
JOURNAL OF FINANCIAL ECONOMICS
Volume 118, Issue 1, Pages 168-191Publisher
ELSEVIER SCIENCE SA
DOI: 10.1016/j.jfineco.2015.06.011
Keywords
Privatization; Government ownership; Bonds; Cost of debt
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Funding
- College of Business at Iowa State University
- Sovereign Investment Lab, Baffi CAREFIN Centre, Bocconi University
- King Fand University of Petroleum and Minerals
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We investigate how government equity ownership in publicly traded firms affects the cost of corporate debt. Using a sample of bond credit spreads from 43 countries over 1991 2010, we find that government ownership is generally associated with a higher cost of debt, consistent with state-induced investment distortions, but is associated with a lower cost of debt during financial crises and for firms more likely to be distressed, when implicit government guarantees become the dominant effect. Our results are robust to controls for the endogeneity of government ownership, and we find these effects to be specific to domestic government ownership. (C) 2015 Elsevier B.V. All rights reserved.
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