Mixed Ownership and Alternatives to Privatization in India

Abstract

This paper conducts two empirical investigations concerning state-owned enterprises (SOEs) in India. The first follows existing methods proposed by Ben-Nasr et al. (2012) and OECD (2019b) to estimate the cost of equity for publicly-traded Indian SOEs with mixed ownership (owned by both the state and private individuals). I argue that Indian SOEs not only face higher costs of equity than private firms, but are less likely to have exceeded ex-ante cost of equity estimates with subsequent realized returns on equity. The second study evaluates the effectiveness of an Indian government program designed to reward well-performing firms with enhanced corporate autonomy. Analysis of the timing of performance gains suggests that improvements to financial performance are exogenous to the program itself. This paper responds to the recent rise in state-led capitalism and continuing development of capital markets in regions with large SOE sectors.