Risk, structure and performance: An analysis of private investor strategies in emerging economy electricity markets

In this dissertation, I present an analysis of private investor strategies in emerging economies in the context of electricity privatization transactions. I base my research on the premise that emerging economies present risky business environments on account of macroeconomic, political, institutional and regulatory uncertainty. These risks notwithstanding, the wave of privatization sweeping many emerging economies in the 1990s presented investment opportunities to private sector actors from the developed world. Using data on electricity privatization transactions, country risk and investor strength, I research what strategies private investors can put in place to capitalize on potentially lucrative investment opportunities, while at the same time mitigating their exposure to the risks emanating for the business contexts in host countries.; Drawing on strategic management principles and transaction cost economics, I develop and test hypotheses about strategies employed by private investors given host country risk profiles, and their own strength stemming from their past experience (with privatization transactions, with the region of investment, and with the host country) and their world market share. In addition, I assess stock market responses to these investor strategies in emerging economies reflected in the abnormal returns to the investing firms. Finally, I examine the impact of investing firm strategies on the stability of the privatization transaction structure over three years after the initial announcement of the transaction investment. Results indicate that different risks and investor strength attributes impact different investor strategies, stock market reactions, and transaction stability over time. Overall, I find that the level of stock market development consistently influences investor strategies and contributes to stable transaction structures, while contract repudiation impacts stock market reactions. Further, past experience with privatization transactions, with entry modes, and with the host country mitigate investors' exposure to emerging economy risks.