ABSTRACT
On the one hand, the government values companies at lower risk premium and, on the other hand, managers in companies with government ownership enjoy more discretion (recall the Treasury only received warrants for non-voting shares, or agreed not to vote the stock) and are less risk averse in selecting projects. Therefore, idiosyncratic events have lower impact on portfolios with government ownership. Thus, investors demand lower liquidity premiums for firms with government ownership. Managers who enjoy more discretion behave risk neutral: screen projects at a lower discount rate (invest more and more promptly) in companies without government ownership. By the same token, investors in companies with government ownership know managers behave risk neutral and value them accordingly.
