The Privatization of Firms

This chapter studies the privatization of firms. Previous research has emphasized the various ways in which state-owned firms have been sold to the private sector and the impact of private ownership on firm-level outcomes such as returns and investment. Felipe González and Mounu Prem provide a summary of the existing literature for the case of Chile and use firm-level data to provide an evaluation that improves on previous work by explicitly accounting for the effect of other policies implemented by the regime. The authors show that private ownership leads to higher investment and lower average returns, but both investment and returns decrease substantially in the cases when firms were sold at relatively low prices to buyers who collaborated with the dictatorship. Beyond the evaluation, the authors also discuss the political effects of the reform, how the sales likely shaped uncertainty about economic policy, and the difficulties in evaluating the process as a whole.