Luca J. Uberti (University of Luxembourg)

Work in Progress Seminar

Opportunistic privatization

Abstract. We argue that, in the run-up to elections, self-interested politicians use privatization opportunistically to buy votes and increase their probability of re-election. When state-owned firms are privatized, politicians can use subsidies to persuade the new managers to pursue inefficient strategies that bring political benefits to them. Under plausible assumptions, politicians have a strict preference for privatization over state ownership in the run-up to elections. We test these predictions using a unique dataset covering the full population of former socially owned enterprises in post-Milošević Serbia (2001-2019). We report robust conditional correlations consistent with our theory. Privatization sales and revenues increase significantly in pre-election periods. The firms privatized before elections are sold at a lower price, and exhibit higher total costs after privatization, than otherwise similar firms. They also have a higher probability of bankruptcy and, conditional on surviving, display lower profitability than otherwise similar firms. These findings highlight the link between privatization, elections and corruption, and point to the need for monitoring, or even suspending, privatization sales during election periods.

Joint with Vladan Ivanovic and Drini Imami.