Testing Limits to Policy Reversal: Evidence from Indian Privatizations / Siddhartha G. Dastidar, Raymond Fisman, Tarun Khanna.

Format:

Book

Author/Creator:

Dastidar, Siddhartha G.

Contributor:

National Bureau of Economic Research.

Fisman, Raymond.

Khanna, Tarun.

Series:

Working Paper Series (National Bureau of Economic Research) no. w13427.

NBER working paper series no. w13427

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Testing Limits to Policy Reversal

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2007.

Summary:

We examine the effect of regime change on privatization using the 2004 election surprise in India. The pro-reform BJP was unexpectedly defeated by a less reformist coalition. Stock prices of government-controlled companies that had been slated for definite privatization by the BJP dropped by 3.5 percent relative to private firms. Surprisingly, government-controlled companies that were only under study for possible privatization fell by 7.5 percent relative to private firms. We interpret this as evidence of investor belief of policy irreversibility, where reforms may reach a stage beyond which future regimes have difficulty reversing those policies. Further analysis suggests that layoffs, combined with the privatization announcement, served as a credible commitment to the government's privatization agenda.

Notes:

Print version record

September 2007.