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Journal of Law, Economics, and Organization Advance Access published online on September 21, 2009
Journal of Law, Economics, and Organization, doi:10.1093/jleo/ewp028
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© The Author 2009. Published by Oxford University Press on behalf of Yale University. All rights reserved. For Permissions, please email: journals.permissions@oxfordjournals.org

Privatization and Leverage

Christian At*

University of Franche-Comte

Pierre-Henri Morand**

University of Franche-Comte

* CRESE, University of Franche-Comte, Besancon, France. Email: christian.at{at}univ-fcomte.fr

** CRESE, University of Franche-Comte, Besancon, France

This article studies privatization methods when potential buyers can lever up strategically to maximize their probability of winning. We endogenize the optimal fraction of shares to be auctioned off when privatizing a company. There is a close correlation between the optimal fraction of shares to be sold off and the auction winner's debt level and hence the risk of bankruptcy. (JEL G38, D82)

We would like to thank an anonymous referee, the editor Luis Garicano, Denis Gromb, seminar participants at Besancon, Bordeaux, and Montpellier for helpful comments and suggestions.


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