Impact of state ownership on stock return: a difference-in-differences approach

Abstract

The aim of this thesis is to analyse the impact of state ownership on stock return on a sample of European listed firms from 2002 to 2020. In general, two views are opposed regarding the influence of the state as a shareholder. On the one hand, the literature provides large evidence that, in general, state ownership is detrimental to firm performance and governance, with some nuances depending on states objectives and the types of investors. On the other hand, state as an owner can provide preferential access to resources and rescue firms, especially during economic downturn. The empirical study uses a difference-in-differences model to estimate the impact of state ownership on stock return and cross-sectional regressions to estimate the drivers of stock return. The results suggest that the investors do not value state ownership, even in time of distress. Indeed, the markets do not view positively governments involved in the acquisition of a company’s equity stakes and it translates into negative stock return. Moreover, acquisitions made during crises do not add any value. Finally, in the short term, the acquisition of the majority of shares by governments conveys a reliable signal to the investors, which translates into a positive correlation with stock return.