Reference : State Owned Firms: Private Debt, Cost Revelation and Welfare
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Business & economic sciences : Microeconomics
http://hdl.handle.net/10993/12875
State Owned Firms: Private Debt, Cost Revelation and Welfare
English
Picard, Pierre M. mailto [University of Luxembourg > Faculty of Law, Economics and Finance (FDEF) > Center for Research in Economic Analysis (CREA) >]
Rusli, Ridwan [> >]
2012
Center for Research in Economic Analysis, University of Luxembourg
CREA Discussion Paper Series
Yes
[en] State-owned firms ; privatization ; debt ; information asymmetry
[en] In this paper we study the role of private debt financing in disciplining a state owned firm operating for a government that incurs a cost of public financing. We show that debt contracts allow the government to avoid socially costly subsidies by letting unprofitable state- owned firms default. Debt is never used when the firm and government share the same information about the firm. By contrast, when the state-owned firm has private information, the government has an incentive to use debt to reduce the firm's information rents. We identify the conditions under which a positive debt level benefits governments. They depend on the cost of public funds, the interbank funding rate, the share of foreign investors, the level and uncertainty of the firm's cost.
Researchers ; Students
http://hdl.handle.net/10993/12875
http://wwwfr.uni.lu/content/download/57174/676713/file/2012-10%20-%20State%20Owned%20Firms%20-%20Private%20Debt,%20Cost%20Revelation%20and%20Welfare.pdf

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