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Privatisation and Financial Market Development (PFM), Final Report



The project has analysed whether the widespread privatisation process has helped the development of financial markets, the integration of European financial markets, and the stabilisation of economies, in particular in transition countries and in financially stressed Western economies. The results provide new theories and empirical evidence, filling a crucial gap in the existing literature in economics and finance.
In the theoretical analysis, privatisation is shown to have important welfare and financial implications. First of all, it increases risk sharing opportunities, encouraging an increase in the supply of private assets. Moreover, financial markets development and privatisation may also facilitate intertemporal choices such as saving and investment. The empirical analyses of both European and transition countries point out that privatisation has helped the development of financial markets. In particular, the joint work has focussed on market liquidity showing how a sustained privatisation program implemented through share issues on public equity markets is shown to be key in boosting liquidity. Moreover, the privatisation of different firms may have a different impact on market development: Privatisation in energy, telecom and utility industries have a strong impact, and the same is true of also privatisation associated with foreign listings.
As for the attitude by Governments to sell privatised firms through foreign markets as well, the theoretical results stress that Government maximising privatisation revenues will often resort to double listings in their national market as well as in the relevant international market. Governments mainly concerned in minimising the price volatility of privatised stocks, however, will generally just do the opposite choices. They will prefer single listings to double listings and, under plausible parameter constellations, listings in the home market to international ones.

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