Labor protection and the privatization or partial privatization method

In this paper, we examine whether the extent to which the labor force is legally protected impacts the choice of whether to privatize SOEs through share issues in the public stock exchange or through asset sales to a small group of investors. Based on a sample of 3983 privatizations, which occurred from 1989 through 2008 in 55 countries, and using various measures of labor protection, we find that greater labor protection enhances the likelihood of share issue privatizations (SIPs). This result is robust to controls for political, legal, and economic factors and suggests that legally protected labor acquires enough power to be able to influence a government's choice of the privatization method. We also provide evidence that the positive effect of labor protection on the likelihood of SIPs is stronger (weaker) in countries where investors enjoy better (worse) legal protection, financial systems are more (less) developed, and when foreign investors are involved in the privatization offer.