BICEPS/SSE Riga Research Seminar: Does Nationalization Work? Evidence from Government Takeovers in Russia

Abstract: After the decade of large-scale privatization in the 1990s, many emerging market economies have undergone a policy shift towards consolidation and extension of the state sector, partly through selected nationalizations. Also the Russian government has been increasing its role as an owner in several sectors of the economy since the 2000s. We study the factors that drive nationalization of private companies and find economic factors such as profitability or revenue growth to be irrelevant while industry affiliation, in particular, an indicator variable for strategic industries is a good predictor of nationalization. We further study the effects of nationalization on firm-level outcomes such as revenues, investment, leverage, employment, wages, and operational performance (profitability) of target companies. To address these questions, we use a comprehensive hand-collected data set of more than 250 government takeovers in Russia between 2004 and 2013 and a carefully matched sample of companies that stayed under private ownership. Preliminary results for a subsample of transactions from 2004 to 2008 show a neutral effect of nationalization on performance and increased financial leverage. We further distinguish companies that have been bailed out (based on low values of equity and losses in consecutive years) from companies that have been nationalized to supposedly strategic or other reasons. Finally, we highlight changes in sources of funding from private to state-owned banks, subsidies, CEO turnover, and the composition of the board of directors going along with nationalization and how they affect match-adjusted performance changes.

Carsten Sprenger is a Senior Lecturer of Finance at the New Economic School, Moscow. He holds a PhD in Economics from Universitat Pompeu Fabra in Barcelona, Spain. Until 2017, he worked as a Lecturer in Finance at the International College of Economics and Finance of the Higher School of Economics in Moscow and Head of the International Laboratory in Financial Economics of this university. His research interests include corporate finance and governance, privatization, nationalization, and banking. Carsten's recent work includes “Corporate Governance and Investment-Cash Flow Sensitivity: Evidence from Russian Unlisted Firms” (with Olga Lazareva, R&R at Journal of Comparative Economics) and “Limited Demand, Limited Supply – Corporate Governance and Sustainability in Russia” (in The Cambridge Handbook of Corporate Law, Corporate Governance and Sustainability, edited by Beate Sjåfjell and Christopher M. Bruner, Cambridge University Press, 2019).