Does privatisation affect industries and firms’ capital structure in Europe?

Download This Article

Victor Barros ORCID logo, Décio Chilumbo, Joaquim Miranda Sarmento ORCID logo

Creative Commons License
This work is licensed under a Creative Commons Attribution 4.0 International License.


Over the past decades, there has been a trend towards privatisation in Europe. However, surprisingly little has been published in the finance literature on the industry effects of privatisation on non-financial firms’ capital structure. Talberg, Winge, Frydenberg, and Westgaard (2008) demonstrate that capital structures are industry-specific, and the literature on privatisation and leverage claims both a positive and a negative effect. Using a large sample of privatised firms in Europe, this paper analyses the impact of privatisation on firms’ capital structure. Our results provide no evidence that privatisation impacts firms’ capital structure. Instead, the level of leverage remains largely the same a few years after privatisation. These results remain unchanged even after controlling for certain characteristics, such as the type (asset sale or share issue) of privatisation and the percentage of privatisation. However, additional tests reveal that industry specificities are relevant in explaining capital structure variations following privatisation. When considering industry-specific characteristics, we found substantial statistical evidence that firms in capital-intensive industries experience a greater leverage level after being privatised. Our findings also suggest that governments may optimise privatisation processes after considering what capital-intensive firms may require in terms of funding long-term assets.

Keywords: Capital Structure, Leverage, Privatisation

Authors’ individual contribution: Conceptualization — V.B. and D.C.; Methodology — V.B., D.C., and J.M.S.; Software — V.B. and J.M.S.; Validation — V.B. and J.M.S.; Formal Analysis — V.B. and J.M.S.; Investigation — V.B. and J.M.S.; Resources — V.B. and D.C.; Data Curation — V.B. and J.M.S.; Writing — Original Draft — V.B. and J.M.S.; Writing — Review & Editing — V.B. and J.M.S.; Visualization — J.M.S.; Supervision — V.B. and J.M.S.; Project Administration — V.B. and J.M.S.; Funding Acquisition — V.B. and J.M.S.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

Acknowledgements: The authors gratefully acknowledge the financial support received from FCT — Fundação para a Ciência e Tecnologia (Portugal), and the national funding obtained through a research grant (UIDB/04521/2020).

JEL Classification: G32, L33

Received: 01.02.2021
Accepted: 23.04.2021
Published online: 27.04.2021

How to cite this paper: Barros, V., Chilumbo, D., & Sarmento, J. M. (2021). Does privatisation affect industries and firms’ capital structure in Europe? Journal of Governance & Regulation, 10(2), 166–178.