Testing limits to policy reversal: Evidence from Indian privatizationsCoauthor(s): Siddartha Dastidar, Tarun Khanna. View Publication
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 >.
Source: Journal of Financial Economics
Dastidar, Siddartha, Raymond Fisman, and Tarun Khanna. "Testing limits to policy reversal: Evidence from Indian privatizations." Journal of Financial Economics 89, no. 3 (September 2008): 513-526.
Date: 9 2008