Presence of foreign investors in privatized firms and privatization policy

• DOI: 10.1007/s00712-011-0254-4
• Publication Date: 2011-11-11T13:15:02Z
• Authors: Ming Hsin Lin; Toshihiro Matsumura
• Keywords: 0502 economics and business; 05 social sciences; 8. Economic growth

This paper investigates how the presence of foreign investors in privatized firms affects privatization policy in a mixed oligopoly. We find that an increase in the stockholding ratio of foreign investors in a privatized firm increases the optimal degree of privatization, whereas an increase in the penetration of foreign firms in product markets reduces it. These results imply that the degree of openness of financial markets and that of product markets have contrasting implications for the optimal privatization policy.