Privatization and Business Groups: Evidence from the Chicago Boys in Chile∗
Privatization and business groups: Evidence from the Chicago Boys in Chile∗ Felipe Aldunate, Felipe Gonzalez,´ Mounu Prem, Francisco Urzua´ I.y Business groups are the predominant organizational structure in mod- ern Chile. This article tests the long-standing hypothesis that the privatization reform implemented by the “Chicago Boys” during the Pinochet regime facilitated the creation of new groups and hence the renovation of the country’s elites. Using new data we find that firms sold during this privatization later became part of new business groups, process aided by an economic crisis that debilitated traditional elites. Moreover, some firms were bought by Pinochet’s allies and were later used as providers of capital within groups. We conclude that privatizations can empower outsiders to replace business elites. Keywords government, firms, groups, privatization ∗June 2020. We would like to thank Emanuele Colonnelli, Jose´ D´ıaz, Andrew Ellul, Eric Hilt, Gonzalo Islas Rojas, Borja Larra´ın, Pablo Munoz,˜ Paola Sapienza, Mart´ın Rossi, Giorgo Sertsios, Rodrigo Soares, Juan F. Vargas, Eduardo Walker, and Yishay Yafeh for comments and suggestions. Jorge Araya, Pablo Valenzuela, and Cristine von Dessauer provided excellent research assistantship. Aldunate acknowledges funding from Proyecto Fondecyt Iniciacion´ #11160874 and Gonzalez´ acknowledges funding from Proyecto Fondecyt Iniciacion´ #11170258. yAldunate: Pontificia Universidad Catolica´ de Chile, Escuela de Administracion.´ Gonzalez:´ Pontificia Univer- sidad Catolica´ de Chile, Instituto de Econom´ıa. Prem: Universidad del Rosario, Department of Economics. Urzua:´ City University of London, Cass Business School. 1 1 Introduction Business groups are the predominant organizational structure in modern Chile (Rojas, 2015).1 Yet an empirical examination of how these groups became one of the most important actors in the country’s economy has been notably absent.
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