Privatization and macroeconomic financial distress in emerging market countries
This dissertation examines privatization and the relationship between macroeconomic financial distress and the propensity to privatize in emerging market countries. The research was undertaken to investigate the rationales of privatization and to attempt to explain the pattern and behavior of privatization in emerging market countries (EMCs). The central hypothesis under investigation is that countries with fiscal pressures such as high debt levels, significant budget deficits, and large current account deficits, ceteris paribus, are more likely to increase their privatization activities. The study begins by providing a background on privatization and state-owned-enterprises (SOEs) in EMCs. It then reviews the theoretical literature underlying privatization and financial distress. Next it provides a comparative profile of EMCs that have or are in the process of privatizing. The empirical analysis supports the hypothesis of a positive relationship between financial distress (with an emphasis on debt as a primary driver of distress) and privatization. In particular, higher levels of debt cause financial distress and unproductive investment and this in turn causes countries to privatize relatively more assets.