The Effect of Government Ownership on Share Prices during the Global Financial Crisis: An Empirical Study of Share Price Returns and Volatility of Publicly Listed Companies with Governments as a Blockholder

Ida Bolsønes & Marthe Brænden Bordal

Student thesis: Master thesis


This thesis investigates the effects of state ownership on share prices and volatilities during the global financial crisis of 2007-2009. Previous research has found that state ownership of publicly listed firms has negatively affected firms’ share prices, as governments are expected to use their ownership stake to reach sociopolitical goals that are not profit maximizing. However, some more recent studies suggest that state ownership might be beneficial during a recession or crisis. This thesis hypothesize that investor sentiment drove share prices up for state-owned firms during the crisis, as this ownership represents some degree of financial security. The hypotheses are investigated through a cross-sectional and a time-series analysis. The buy-and-hold share price returns and their correlations with ownership variables are compared to a pre-crisis and a post-crisis period, to establish whether the effect is contingent upon the crisis or expected to be constant. In addition, CAPM, three-, four- and five-factor analyses of a portfolio of state-owned firms are conducted using daily returns and compared to a portfolio of peers. This is to estimate volatilities and to determine whether there are any significant excess returns. The results show that the buy-and-hold returns for the state-owned firms during the crisis are significantly higher compared to their peers. This also holds when controlling for other types of blockholders and firm characteristics. The buy-and-hold returns for the pre- and post-crisis periods are no different from or significantly lower than the returns of the peers, supporting previous literature. Hence, it seemsthat state ownership does have a positive effect on share price returns during the global financial crisis, but not immediately before or after. Moreover, state-owned firms are found to have lower volatility than their peers and the market proxy, both in normal and crisis times. The excess daily returns of the state-owned firms are significant and negative relative to the market during the crisis, while they are significant and positive before and after the crisis. This finding is in contrast with the results found when using the buy-and-hold returns. However, the excess returns are very close to zero. Further, the regression of daily returns does not take into account any ownership or firm-specific variables. Thus, there might be other characteristics of the government-owned companies that are driving these results.

EducationsMSc in Applied Economics and Finance, (Graduate Programme) Final ThesisMSc in Finance and Investments, (Graduate Programme) Final Thesis
Publication date2018
Number of pages188
SupervisorsBersant Hobdari