International privatization: Estimating the returns to United States acquirers of foreign state-owned enterprises

This dissertation estimates shareholder returns for publicly-traded U.S. firms which acquire privatized assets from foreign governments. It reveals that the magnitude of the returns depends upon decisions made by target governments and by a firm\u27s competitors—external factors to which the acquirer must react—as well as through the firm\u27s own strategic choices about bidding, R&D investment, and international expansion. First, the dissertation investigates whether the method employed to sell state-owned enterprises influences acquirer returns. An event study provides evidence that negotiation acquirers outperform auction participants in the stock market. Over the course of the privatization process, auction participants receive about a one percent penalty compared to their negotiating counterparts. At the mean level of market capitalization, this translates into a difference of about $200 million in shareholder returns per deal. Second, the dissertation explores the role played by competition in privatization auctions of heterogeneous goods. Theory and recent empirical evidence suggest that winning bids in homogeneous-goods auctions are non-monotonic as a function of the number of bidders. Although the analysis is limited by sample size, there is a U-shaped pattern in acquirer privatization returns consistent with prior research. Returns are decreasing as a function of competition when there are four or fewer bidders. Then, the pattern suggests that acquirers begin to attenuate their bids. Finally, the dissertation examines acquirers\u27 strategic choices that may influence shareholder returns. Internalization theory suggests that U.S. firms realize positive returns when they expand internationally if they own information-related intangible assets. The multinational network hypothesis suggests that international expansion is beneficial because a firm can exploit the wide variety of market imperfections and variable costs in product and factor markets. Recent empirical research finds that testing the interaction of these two theories is crucial for estimating their effects accurately. My empirical results support this contention. While abnormal returns are positively correlated with both R&D stock and multinational network size, its overall magnitude can be negative depending upon the breadth, depth, and industrial development of a firm\u27s multinational network