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The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis
The Journal of Finance
Abstract
This study compares the pre- and postprivatization financial and operating performance of 61 companies from 18 countries and 32 industries that experience full or partial privatization through public share offerings during the period 1961 to 1990. Our results document strong performance improvements, achieved surprisingly without sacrificing employment security. Specifically, after being privatized, firms increase real sales, become more profitable, increase their capital investment spending, improve their operating efficiency, and increase their work forces. Furthermore, these companies significantly lower their debt levels and increase dividend payout. Finally, we document significant changes in the size and composition of corporate boards of directors after privatization.
... 7.2.1 Wilcoxon signed-rank test. Following the standard methodology of Megginson et al. (1994), Boubakri and Cosset (1998) and D'Souza and Megginson (1999), the present study has also determined the performance measures as mentioned above for a period of seven years (three years prior to disinvestment and three years' postdisinvestment, including the year of Here, along with three indicators of profitability and efficiency, several other measures of performance such as employment, leverage and dividend payout ratio are also taken and compared between the pre-and postdivestiture period. Having calculated the pre-and postevent means, the study uses the Wilcoxon signed-rank test to test for significant changes in the variables. ...
... Average increase of 3.999% (6.0205) is statistically significant at the confidence limit of 95% (p-value equals to 0.023 < 0.05). While no tough theoretical arguments concerning expected dividend payouts have been put forward, it appears rational to suppose that payouts will increase because private investors typically demand more dividend payments as compare to state (Megginson et al., 1994). ...
... The credit for the popularity of privatization somewhat goes to the point that it can fetch huge amount of income to governments, without having to increase tax rates or cutting expenditure programs (Megginson and Boutchkova, 2000). Further, governments have been expecting the improvements in performance of generally unsatisfactory economic performance of government-owned firms through privatization (Megginson et al., 1994). Gangadhar and Devi (2007) described the terminology and stated that "the word privatization has different nomenclature in different countries like "Disinvestment", "Peopalisation", "Denationalisation", "Prioritistion", "Partners in development" and "Transformation and Restructuring". ...
Purpose
The purpose of this study is to represent an attempt to empirically capture the impact of disinvestment on the financial and operating performance of 26 Bombay Stock Exchange (BSE) listed central public sector enterprises (CPSEs) in India which got divested through stock market mechanism during the time period of 2000–2014.
Design/methodology/approach
Through ratio analysis different ratios such as return on assets, return on equity, net income efficiency, debt equity, dividend payout and employment levels have been computed. Pre- and post disinvestment performance of these firms is examined through Wilcoxon signed-rank test. The present research endeavors to examine the impact of disinvestment through random effect panel data models in order to control the effect of other firm specific variables.
Findings
The overall results of the study indicate statistically significant fall in profitability ratios. The empirical results have not witnessed positive effect of disinvestment on the profitability of the CPSEs; rather, this effect has found to be negative. The possible reasons behind these negative results could be poor pre disinvestment financial health of CPSEs, negative rate of return on capital employed by PSEs and inefficiency which need to be tested empirically by future researchers.
Originality/value
The fact that government-owned firms are typically less proficient or at least less gainful than private-owned firms is widely hypothesized. Therefore, the disinvestment policy aims at dropping the participation of the public sector in the economic actions of the country in order to support the private sector. The present study is a first of its kind to study the impact of disinvestment on the profitability of the firms, which got divested through stock market mechanism since the year 2000 by applying both univariate and multivariate analysis.
... Tran et al. (2015) have used the regression method to assess the impact of equitization on firm performance in Vietnam and their research results are consistent with the study by Loc and Tran (2016) which means that the equitized SOEs perform better after equitization, especially in term of profitability. These results are consistent with the empirical results in developed countries such as in the study of Megginson et al. (1994). Hung et al. (2017) studied the impact of equitization on firm performance in Vietnam. ...
... Nhan and Son (2017) studied whether equitization helps SOEs to be more efficient in terms of profitability, operating efficiency, output, employment and leverage after two years of equitization or not. The authors use five firm performance measures proposed by Megginson et al. (1994) and they did not use two measures, including payment and capital investment due to data limitation in Vietnam. Nhan and Son (2017) also found that there is improvement in firm performance after equitization in terms of profitability and sales efficiency. ...
... Through empirical evidence and related theories, the authors propose testable predictions in Table 1 that explain the research hypothesis presented as follows. Megginson et al. (1994). ...
This study aims to provide empirical evidence on the relationship between listing and firm performance in Vietnam. Using a data set of 48 listed and unlisted firms from Thomson Reuter’s data, this research applies pre-post comparison method to evaluate the performance change for listed firms after listing. The research results show that listing on the Vietnamese stock market does not help Vietnamese firms improve their performance; in particular, there is no increase in profitability, operating efficiency and leverage. However, listing helps firms improve their sales and reduce their reinvestment rates. The research results also show that unlisted firms do not improve in firm performance if they are only traded on the Upcom stock exchange. The research results are inconsistent with relevant theories explaining why firms go public in developed countries. Vietnam’s listing delay can also be explained by these results and investors should consider investing in listed firms because these firms improve their sales in the short term. The authors also suggest that the Vietnamese government create policy to encourage firms to list their stocks on the official stock market after equitization.
... Although the use of accounting data from multiple countries creates challenges (Megginson & Netter, 2001), it is not uncommon in similar research (Boubakri, Cosset, & Guedhami, 2005;D'Souza & Megginson, 1999;D'Souza, Megginson, & Nash, 2005;Herrera & Lora, 2005;Megginson, Nash, & Randenborgh, 1994;Micco, Panizza, & Yanez, 2007). We think that some of the problems inherent in multicountry studies are reduced in the present study. ...
... Second, we studied the largest firms in the region, which are likely to report more complete and accurate data. Third, we focused on basic variables such as sales and net income, which represent the lowest-denominator accounting variables and thus are less subject to problems (Megginson, Nash, & Randenborgh, 1994). Table 1 summarizes the variables and measures used in the analysis. ...
... The dependent variable was profitability, measured as return on sales (ROS), a measure of profitability commonly used in research (e.g., Geringer, Tallman, & Olsen, 2000;Palepu, 1985). An important justification for using ROS was that the ratio includes two flow measures, which, compared to return on assets (ROA), tend to be less influenced by inflation and accounting stan-dards (Megginson et al., 1994;Boubakri et al., 2005). ...
... 3. The first study to use this methodology was by Megginson et al. (1994) Since then, several studies have employed the same methodology such as Cosset (1998), D'Souza and and others. However, these methodological procedures have disadvantages including: ...
... Empirical studies undertaken by many researchers such as Megginson et al. (1994), Boubakri and Cosset (1998), D'Souza and , Megginson (2010) all report strong performance improvements as a direct consequence of privatisation. Aggregated, these studies examined several thousand privatised companies from almost fifty countries and consistently reported that privatisation increases profitability, output and efficiency. ...
... The profitability ratios were computed using net income as the profit measure in the numerator of all three ratios. As per Table 4 other empirical studies such as Megginson et al. (1994), Macquieira and Zurita (1996), Boubakri and Cosset (1998) and D'Souza and and Ismail (2018) but, contrasted with Harper (2001). Table 5 presents the analysis by size of company. ...
Article History Keywords Privatisation Financial performance Profitability Output Operating efficiency Capital investment Employment Leverage Dividends Egypt. JEL Classification: G4. This study aims to empirically examine the financial and operating performance of Egyptian privatised companies. The study compares the pre-and post-privatisation financial and operating performance of 60 companies from Egypt that have experienced privatisation through different methods during the period from 1991 and 1997. There were significant increases in the mean and median levels of profitability, operating efficiency, capital investment, output and dividends for the whole sample of companies after privatisation. There were significant decreases in the mean and median of both leverage ratios and employment levels. Further analysis was also undertaken using the three different background characteristics (i.e. size of company, type of industry and privatisation methods). No significant differences were detected in the Kruskal Wallis test analysis of privatisation methods. The Wilcoxon test, the Proportion test and the Kruskal Wallis test analyses for the company size and industry type revealed some significant results. Overall, the findings do seem to support the broad benefits of the Egyptian privatisation programme and the improvements in the financial and operating performance of the privatised companies. Contribution/ Originality: This study is the first logical analysis of the Egyptian privatization programme and its financial and operating performance since 1991. It is one of the very few studies to have investigated the privatization phenomenon in the Middle East.
... The first major sale occurred in 1961, when the FRG sold a majority stake in Volkswagen in a public share issue, and four years later orchestrated a similar secondary share issue for VEBA. These two issues increased the number of shareholders in Germany from approximately 500,000 to almost 3,000,000 (Megginson et al., 1994). ...
... After the UK, many different countries adopted privatisation programmes. Megginson et al. (1994) document divesting share issues by Denmark, Italy, Chile, Malaysia, and Singapore in 1985. The next major country to adopt privatisation was France, which marked a sharp break with the country"s dirigiste tradition of state intervention. ...
... In addition, Austria, Belgium, Holland, Jamaica, Japan, Spain, Sweden, and the United State all implemented significant privatisation programmes through share issues during 1986 and 1987 (Megginson et al., 1994). After 1987, privatisation programmes spread rapidly around the world, especially to developing countries in South America, Africa, and South Asia. ...
This paper aims to present a general overview of the literature relating to privatisation as a worldwide economic phenomenon. It starts by describing the origins, definitions and the rationale for privatisation. The spread of the privatisation phenomenon throughout the world is also discussed. The study then provides justification for privatisation in less developed countries (LDCs). It also summarises privatisation objectives, the sequencing and pace of privatisation, factors influencing privatisation and the agent principal theory. The study then outlines the different privatisation methods and briefly refers to efficiency and effectiveness in the context of privatisation, privatisation and changes in corporate governance as well as arguments on privatisation. A discussion into the role of international agencies in the privatisation process is also provided and summarises the main lessons drawn from privatisation. Previous research including empirical studies comparing the performance of government owned companies, empirical studies in developed countries (non-transition economies), and in developing countries (transition economies) as well as empirical studies comparing pre and post privatisation performance changes are comprehensively discussed.
... Tran et al. (2015) have used the regression method to assess the impact of equitization on firm performance in Vietnam and their research results are consistent with the study by Loc and Tran (2016) which means that the equitized SOEs perform better after equitization, especially in term of profitability. These results are consistent with the empirical results in developed countries such as in the study of Megginson et al. (1994). Hung et al. (2017) studied the impact of equitization on firm performance in Vietnam. ...
... Nhan and Son (2017) studied whether equitization helps SOEs to be more efficient in terms of profitability, operating efficiency, output, employment and leverage after two years of equitization or not. The authors use five firm performance measures proposed by Megginson et al. (1994) and they did not use two measures, including payment and capital investment due to data limitation in Vietnam. Nhan and Son (2017) also found that there is improvement in firm performance after equitization in terms of profitability and sales efficiency. ...
... Through empirical evidence and related theories, the authors propose testable predictions in Table 1 that explain the research hypothesis presented as follows. Megginson et al. (1994). ...
This study aims to provide empirical evidence on the relationship between listing and firm performance in Vietnam. Using a data set of 48 listed and unlisted firms from Thomson Reuter’s data, this research applies pre-post comparison method to evaluate the performance change for listed firms after listing. The research results show that listing on the Vietnamese stock market does not help Vietnamese firms improve their performance; in particular, there is no increase in profitability, operating efficiency and leverage. However, listing helps firms improve their sales and reduce their reinvestment rates. The research results also show that unlisted firms do not improve in firm performance if they are only traded on the Upcom stock exchange. The research results are inconsistent with relevant theories explaining why firms go public in developed countries. Vietnam’s listing delay can also be explained by these results and investors should consider investing in listed firms because these firms improve their sales in the short term. The authors also suggest that the Vietnamese government create policy to encourage firms to list their stocks on the official stock market after equitization.
... The preceding explanation shows the importance of the role of SOEs in the economy of the country. Megginson et al. (1994) and Wei et al. (2003) proved that after privatisation, SOEs in various countries showed an increase in sales, capital investment, operating efficiency, dividend payments, and leverage. By contrast, Gupta (2005) analysed the effect of the partial privatisation of SOEs in India and proved that privatisation had a significant positive impact on sales, profits, and labour productivity. ...
... Hence, the company's performance is expected to improve. Megginson et al. (1994) concluded that privatisation has led to increased sales, profits, and investments and enhanced efficient operations and the ability of employees, thereby prompting the burden of corporate debt to decrease and increase dividends. Gupta (2005) conducted research on the privatisation of state enterprises in India and proved that privatisation had a positive impact on profitability, productivity, and investment. ...
... The results of this research support the idea of Megginson et al. (1994) that privatisation has led to increased sales, profits, investment, efficient operation, and human resource capacity, thereby prompting the burden of corporate debt to decrease and increase dividends. This result is consistent with the research of Tomic (2006) on privatisation in Brazil. ...
... The preceding explanation shows the importance of the role of SOEs in the economy of the country. Megginson et al. (1994) and Wei et al. (2003) proved that after privatisation, SOEs in various countries showed an increase in sales, capital investment, operating efficiency, dividend payments, and leverage. By contrast, Gupta (2005) analysed the effect of the partial privatisation of SOEs in India and proved that privatisation had a significant positive impact on sales, profits, and labour productivity. ...
... Hence, the company's performance is expected to improve. Megginson et al. (1994) concluded that privatisation has led to increased sales, profits, and investments and enhanced efficient operations and the ability of employees, thereby prompting the burden of corporate debt to decrease and increase dividends. Gupta (2005) conducted research on the privatisation of state enterprises in India and proved that privatisation had a positive impact on profitability, productivity, and investment. ...
... The results of this research support the idea of Megginson et al. (1994) that privatisation has led to increased sales, profits, investment, efficient operation, and human resource capacity, thereby prompting the burden of corporate debt to decrease and increase dividends. This result is consistent with the research of Tomic (2006) on privatisation in Brazil. ...
This study aimed to investigate the effect of corporate governance (CG) to state-owned enterprises (SOEs) performance before and after privatisation. The data consisted of primary data obtained through questionnaires, followed by focus group, and secondary data sourced from published annual reports of SOEs. This research gathered 94 observations of firm-year of SOEs listed in Indonesia. Multiple linear regression was employed to analyse the effect of the CG index on the financial performance, and paired sample t-test to test the performance before and after privatisation. The result shows that the CG index has a positive effect on the financial performance of SOEs. Furthermore, SOEs exhibited improved financial performance after privatisation. Accordingly, the government of Indonesia should selectively choose SOEs for privatisation to achieve the optimum results of privatisation in accordance with the priorities imposed by the government as the primary owner.
... This marked a significant shift in ownership and operation, which continued until 2013. At present, there are some studies examining the impacts of SOE privatization concerning other aspects of enterprise, including enterprise profits (Megginson and Randenborgh, 1994) [1]; layoffs and salary reductions (La Porta and Lopez-de-Silanes, 1999) [2]. However, what most scholars haven't mentioned is the relationship between the privatization and firm innovation. ...
... This marked a significant shift in ownership and operation, which continued until 2013. At present, there are some studies examining the impacts of SOE privatization concerning other aspects of enterprise, including enterprise profits (Megginson and Randenborgh, 1994) [1]; layoffs and salary reductions (La Porta and Lopez-de-Silanes, 1999) [2]. However, what most scholars haven't mentioned is the relationship between the privatization and firm innovation. ...
Over the past few decades of state-owned enterprise (SOE) privatization in China, though many studies have been done concerning different aspects of relationship between the privatization of SOE and firm development, little was known about the impact of state-owned enterprise privatization reform on firm innovation. Some of the prior literature didn’t manage to provide a convincing result to a certain extent as the data the chose was not enough. This article utilizes a substantial dataset of more than 28,000 listed companies that have undergone privatization, extracting the R&D expenditure data of listed companies from Wind database spanning from 2010 to 2022. After systematic investigation of the impact of SOE privatization (as measured by a dummy variable) on innovation (as measured by R&D investment) using the model of regression, it can be found that the privatization of state-owned enterprises in my country has had a negative impact on corporate innovation, as certain preconditions are needed for the success of privatization and restructuring, which plays a vital role in avoiding certain risks after privatization.
... Foreign multinational corporations have been known to participate in development strategies in addressing and ameliorating nutrition deficiencies, as well as improving the provision of reproductive health services (Prahalad 2010). Furthermore, empirical evidence from several previously state-provided services 'strongly suggests that service quality, productivity, and profitability rise significantly following privatization', presumably because principal-agent problems are better overcome in private firms, where owners 'benefit directly from monitoring the agent's performance' (Galiani, Gertler and Schargrodsky 2005: 87;Renzetti andDupont 2004: 1867;Megginson, Nash and Randenborgh 1994;Barberis et al. 1996;Frydman et al. 1999). ...
... Indeed, many scholars have found that a larger availability of capital, and thus an increased capacity to expand service coverage, is endogenous to private participation in water utilities because privatized firms 'have greater access to private debt and equity markets . . . and more incentives to invest' (Boubakri and Cosset 1998: 1;Megginson, Nash and Randenborgh 1994;Renzetti and Dupont 2004). This confounds the inferences that can be drawn from this paper's estimations: namely, if higher levels of investment go hand-in-hand with private ownership of water utilities, then any observed impact of privatization on water access could be due either to the nature of ownership or to larger availability of capital, which presumably causes a positive effect in water provision coverage. ...
Private‐sector provision of water has been promoted in developing countries since 1990 in order to expand water service coverage to low‐income households. Decades later, the consequences of privatizing water utilities are still disputed. Some scholars have found that areas with privatized water services see positive development effects, while others contend that the private‐sector supply of a social good will always lead to its under‐provision. However, does more privatization of water provision in developing countries actually bring about more access to water? This paper hypothesizes that more private participation in water provision will not ensure more access to water at the national level. The relationship is tested using data on weighted percentages of private ownership of water utilities, and access to improved water sources from 1990 to 2015 across 62 countries. Multivariate OLS results indicate a positive relationship but with no statistical significance. 2SLS results, on the other hand, indicate a positive, small and statistically significant effect of water privatization on water access. Nonetheless, the causal mechanism behind these results must be further explored, given that the measured effect could be capturing the result of an increase in investment that is associated with private ownership of water utilities.
... • In recent years, studies on the efficiency of family and SOEs seems to focus on the comparison between family owned business and non-family business (see Beehr et al., 1997;Tsai et al., 2006;Maury, 2006), meanwhile in context of state-owned enterprises, many studies investigate the efficiency of these firms before and after privatisation (see Megginson et al., 1994;Boubakri and Cosset, 1998;D'Souza and Megginson, 1999;Bortolotti et al., 2001;Dewenter and Malatesta, 2001;Harper, 2002). ...
... • Previous studies found that FOEs outperform non-family owned (Beehr et al., 1997;Tsai et al., 2006;Maury, 2006). State-owned enterprises are more efficient after privatisation than before privatisation (Megginson et al., 1994;Boubakri and Cosset, 1998;D'Souza and Megginson, 1999;Bortolotti et al., 2001;Dewenter and Malatesta, 2001;Harper, 2002). However, since family and state-owned enterprises have ownership concentration, SOEs are supposed to be run like FOEs. ...
The relationship between ownership structures and company
performance has been issue of interest among academics, investors and
policy-makers. So far, there are still inconclusive findings that family and state
ownership giving positive or negative impact on firm performance. This study
employed technical efficiency and Malmquist productivity index to measure
firm performance. Period of this study will be conduct from 1992 to 2007.
Result of this study revealed that Technical efficiency study in Indonesia
showed that state owned enterprises (SOEs) had better performance than family
owned enterprises (FOEs) since SOEs’ performance increased more stably
during research period. Meanwhile Malaysia-based technical efficiency study
demonstrated that FOEs samples had lower efficiency level than SOEs, which
performed a little enhancement. In term of productivity, Indonesian FOEs had
become more productive compare with SOEs during three sub-periods. On the
other hand, Malaysian FOEs and SOEs had improved from time to time within
the three sub-periods.
Keywords: ownership structures; technical efficiency and Malmquist
productivity index; FOEs; family owned enterprises; SOEs; state owned
enterprises.
... Second, this paper contributes to the growing body of literature on the effects of privatization. Following the seminal work by Megginson, Nash and van Randenborgh (1994), most studies in the literature have investigated the effects of privatization on the economic or financial performance of companies, such as Dyck (1997) on privatization in Eastern Germany; Sun and Tong (2003) and Tao (2006, 2009) on the reform of state-owned enterprises in China; Liao, Liu and Wang (2014) on the split-share structure reform in China; and Gupta (2005) on partial privatization in India. On the other hand, the association between privatization and the environment is mostly discussed from a theoretical perspective, with diverse conclusions (Bluffstone and Panayotou 2000;Earnhart 2004). ...
This study examines the effect of privatization on the pollution emission intensity of companies by exploiting the quasi-natural experimental ownership reforms of state-owned enterprises in China. By matching corporate pollution emissions with firm-level microdata from 1998 to 2007, we employ a difference-in-differences strategy to identify the environmental effects of privatization. Our findings reveal a significant increase in corporate SO2 intensity and smoke and dust intensity by 12.5 percent and 12.3 percent, respectively. The magnitude of the effect varies significantly across regions and differs by the nature of ownership. We observe significant changes in production technologies and environmental mitigation strategies in state-owned enterprises (SOEs) after privatization. Privatized SOEs undergo major changes in their corporate energy input structures and tend to make a significant strategic shift in their approach to pollution mitigation, investing less in environmental innovation in production and focusing more on end-of-pipe treatments.
JEL Classification: D22, L33, L51, Q53
... On one hand, supporters for positive relationships argue that during the privatization process, state-owned enterprises (SOEs) are empowered to pursue financial performance by mobilizing funds, thereby relieving fiscal pressures on the government. This stance also suggests that SOEs can garner increased support from politicians (Megginson et al., 1994). Additionally, proponents contend that privatization allows SOEs to accommodate a wider array of stakeholders' demands, including the creation of more social employment positions and the enhancement of corporate governance standards. ...
As ESG (Environmental, Social, and Governance) principles increasingly shape the trajectory of global economic and societal sustainability, our study delves into how a firm's network dynamics influence its ESG performance within the Chinese landscape spanning from 2011 to 2020. Drawing insights from agency theory, resource dependence theory, and social network theory, we uncover a notable correlation between board interlocking and ESG performance. This correlation suggests that well‐connected directors can potentially enhance a firm's ESG performance by facilitating information gathering, monitoring, advising, and leveraging influence to address stakeholders' concerns. Moreover, our analysis reveals that the characteristics of ownership structure, as gauged by indicators such as institutional ownership, control‐cash flow wedge, and state‐owned ownership, serve as positive moderators in this relationship. Conversely, board structure, as evaluated by board independence, does not exhibit a significant moderating effect. Additionally, we uncover noteworthy mediating effects of firm size and institutional shareholding on the relationship between board interlocking and ESG performance. Importantly, our findings hold robust across various sensitivity analyses, including alternative model specifications, variable definitions, and strategies to mitigate potential endogeneity concerns.
... He identified non-profit orientation as a hindrance. Some other research said that appointments of less efficient politically affiliated people in the management are responsible for the negative association (Megginson et al., 1994;Boycko et al., 1996). Thus, Zeitun and Tian (2007) suggested a reduction in government ownership to increase firm performance. ...
Purpose: The aim of this paper is to examine the role of institutional, foreign, and government shareholding in enhancing financial performance
of listed companies in the Dhaka Stock Exchange (DSE) of Bangladesh.
Methodology: The study is based on 110 manufacturing companies listed on Dhaka Stock Exchange (DSE) during the period of 2013-2017 which
produces 512 firm-year observations. The study investigates the impact of the extent of ownership of different shareholders (namely institutions,
foreigners, the government) on financial performance (as measured by return on assets, earnings per share and return on sales) of firms by
conducting multivariate analysis using Pooled Ordinary Least Square regression along with year dummy, lag model and serial correlation.
Findings: The results of multiple regression analysis reveal that institutional and foreign ownership are significantly and positively associated with
three proxies of firm performance. This study also finds that government ownership doesn’t have any significant impact on firm performance in
Bangladesh.
Conclusion: The study considers earnings per share as one of the corporate performance indicators which is widely used by fund providers in
financial markets but seldom analyzed in the literature. The study will provide valuable insights to investors, regulators, and managers who want
to understand how the extent of ownership by different shareholders drive different firm performance measures. The study analyzes only nonfinancial companies and does not incorporate market performance in the analysis of the hypothesized relationship among the variables.
... In the relationship between family ownership and corporate success, favorable results are anticipated (Bataineh, Abed, & Suwaidan, 2019). It is anticipated that there will be a negative correlation between governmental ownership and corporate performance (Xu and Wang, 1999;Megginson et al., 1994;Ongore, 2011). The relationship between board size and business performance is anticipated to be as follows: ...
The objective of this study is to examine the impact of distracted directors on the economic growth of companies listed in Saudi Arabia for the period 2012-2019. The final sample consists of 509 firm-year observations. This study integrated the return on assets (ROA), return on equity (ROE), and profit margin ratio (PMR) to establish a composite score indicating the economic growth of companies (EG). Specifically, this study focused on the analysis of firm performance through the utilization of three distinct individual models as well as a composite model. The composite measure (EG) was derived using factor analysis, a statistical technique, to assess companies’ growth. Furthermore, this study used the hypotheses derived from well-established theories to explain the relationship between distracted directors and the economic growth of companies. These include the social network theory, the reputational hypothesis, the agency-based busyness hypothesis, and the resource-dependence theory. The social network theory, reputational hypothesis, and resource-dependence theory all posit positive correlations, whereas the busyness hypothesis posits a negative correlation. This study posits a potential correlation without specifying its direction because of the conflicting theories that attempt to predict the relationship, as well as the inconsistent results reported in previous empirical research. The study's findings provided support for the agency-based busyness hypothesis, as they revealed a negative association between distracted directors and economic growth. The findings of this study have significant implications for the corporate governance policymakers in Saudi Arabia, particularly in relation to the understanding of how distracted directors sitting on the board may indicate potential corruption that, in turn, has a negative impact on the economic growth of companies.
... Estrin and Pelletier (2018) and related studies examined the objectives of privatization, while other studies were interested in the timing and choices of privatization (Megginson and Netter, 2001), as well as the efficiency of the privatization process and that of resulting private firms (Vickers and Yarrow, 1993). These studies found that the improvement in performance and productivity following privatization varied depending on the type of legal and regulatory environments, privatization processes, and the extent of market competition (Boubakri and Cosset, 1998;Megginson et al., 1994;Dewenter and Malatesta, 2000). Privatizations continued after the early 2000s, and at the same time, there was a trend of re-nationalization of previously privatized SOEs in some regions (e.g., Latin America, Russia, or the UK). ...
We review the multidisciplinary literature on state capitalism and the firm to advance the theoretical foundations of the role of the government as an owner of firms. We explain state capitalism, how it has been theorized, how types of states affect choices within and between organizations, and the implications of government involvement on firm corporate governance structures and processes. Drawing on political economy, finance, and public administration literature, we clarify the alternative views of the role of government as an economic agent, the role of states in managing and preserving the natural world, and the tools of state capitalism in times of crisis. Based on our review, we identify four main venues for future research: investigating new types of state capitalism and their variety; studying the multilevel nature of state capitalism in a particular interaction between mechanisms of state capitalism at different levels (e.g., regulation and state-ownership); analyzing the contextuality of state capitalism; and examining similarities of state capitalism across countries.
... In many cases the privatisation of "strategic companies", enjoying a monopolistic position or playing a key economic role, such as firms operating in telecommunications, media, postal services, public transport, airport administration and air traffic control, the energy sector, gas and oil industry (as well as financial institutions) has proven to be difficult. There are several reasons why political reasons, however, Megginson et al. (1994) showed increases in firm's post-privatisation employment levels. 19 Hart, Schleifer and Vishny (1997), Schleifer (1998) using a contractual framework conclude that when contract are incomplete public ownership is preferred to private ownership only when quality is not contractible and cost cutting will lower quality. ...
... This research has concluded that privatization must be accompanied by other economic reforms to ensure that the new private firms are properly regulated and that competitive markets are safeguarded (Doh, 2000). Also, relative performance improvement is highly contingent on the privatization process, the legal and regulatory environment post-privatization, and the degree to which markets are opened to competition concurrent with or following privatization (Boubakri & Cosset, 1998;Megginson, Nash, & Van, 1994;Dewenter & Malatesta., 2000). ...
... Although there are many disadvantages to state-owned enterprise privatization, it is conducive to improving social welfare. Some have argued that privatization can improve efficiency (la Porta & Lopez- De-Silanes, 1999;Megginson et al., 1994;Okten & Arin, 2006) and return on invested capital (Ghosh & Sen, 2012;Megginson & Netter, 2001). Shleifer (1998) regards private ownership as a critical source of innovation incentives. ...
This study constructs a mixed oligopoly model considering product differentiation, the proportion of state‐owned shares, the efficiency gap, and the reform cost, investigates market equilibrium under different competition modes, and discusses the optimal proportion of state‐owned shares. Product differentiation, the proportion of state‐owned shares, and reform costs have complex impacts on the equilibrium results. Complete, partial, and no nationalization may be optimal under certain conditions. The competition mode affects welfare distribution among stakeholders. The government should decide on an optimal nationalization policy according to specific conditions and the market environment.
... All over the world, governments have supported the privatization of public services for many years now. Probably, the search for better performance is the most important reason this option is based on (Megginson et al., 1994), although many other possible reasons have been highlighted (Yarrow, 1986). ...
Considering the environmental impacts of utility activities and the lack of literature systematic understanding of the different factors affecting utility performance with a specific consideration of the environmental sphere, this article tries to bridge this gap conducting a literature review on factors affecting utility performance. An aspect of novelty of the paper is represented by the clusterization of literature (also useful for future studies) that considers the environmental sphere both among factors of influence and as performance dimensions. The analysis conducts to conclude that both as influencing factors and as performance dimensions, the environmental role should be more widely and deeply investigated by literature. The research highlights some managerial implications: the appointment of managers should consider their “green skills” as factor influencing performance of the utilities; the need to develop managerial tools to make the decision-making process effective and efficient also in the environmental sphere.
... Instead, it is consistent with the negative view of government ownership in the privatization literature (e.g. Djankov & Murrell, 2002;Megginson, Nash, & Randenborgh, 2012). It also supports the finding that investments by government-controlled firms do not have any significant impacts on firm growth in Vietnam (Pham & Kalyebara, 2020). ...
This study aims to examine the impact of minority investor protection mechanisms on agency costs. All relevant indicators of minority investor protection adapted from the World Bank’s annual ‘Doing Business’ reports, along with concentrated government ownership, are employed with a panel data sample of 135 Vietnamese listed firms during the period 2014–2018. It is found that the following mechanisms are effective in mitigating agency costs and hence agency problems at the firm level: 1) review and approval requirements for related-party transactions; 2) minority shareholders’ ability to sue and hold directors liable for their duties; 3) minority shareholders’ access to internal corporate documents; 4) investors’ rights to approve major corporate investment and sale of asset decisions; and 5) disclosure in annual reports of salaries, bonuses and other forms of remuneration to directors and management. Interestingly, board independence and controlling government shareholders are not confirmed to play significant roles in addressing agency problems. To the best of the authors’ knowledge, this is the first attempt at testing for the impact of minority investor protection mechanisms developed by the World Bank on agency costs at the firm level, hence providing empirical evidence for the adoption of the minority investor protection mechanisms promoted by the World Bank. This study also provides policy implications for selecting effective mechanisms to mitigate agency conflicts between controlling shareholders and minority investors in order to enhance the financial performance of firms in an Asian emerging market.
... CC is positively and significantly associated with ROA and ROE, indicating that a more concentrated control structure is beneficial to boosting corporate performance. This result is consistent with that of Shleifer and Vishny (1986), Megginson et al. (1994), Xu and Wang (1999), Lemmon and Lins (2003), Chen et al. (2004), and Kang and Kim (2012). However, the interaction between the government dummy and CC is significantly and negatively related to ROA and ROE, indicating the worsening effects of government control. ...
The role of government involvement in firms has received a lot of attention in the last few decades. Government involvement could result in a ‘supporting hand’ and a ‘grabbing hand’. This paper investigates how government control influences the financial performance of Chinese listed firms. We use a panel data set of firms publicly traded on the stock exchanges of Shanghai and Shenzhen over the period 2009‐2013. Our dataset includes 5501 firm‐year observations. Our results suggest that government control of firms, measured by the shareholdings that are directly and indirectly controlled by the government, is negatively related with firms’ financial performance. More specifically, the return on assets, the return on equity and the market‐to‐book ratio are, on average, 1.3%, 2.0% and 8.2% lower for government‐controlled firms. Both central and local government control is undermining firm performance. These findings provide support for the ‘grabbing hand’ theory of the government. Our results also suggest that the negative effect of government control becomes stronger when firm profitability is higher. Firms with a poor financial performance benefit from government control, which supports the ‘supporting hand’ theory of the government.
... A study conducted by Megginson and Netter (2001) summarizes the performance of a privatized firm (operating and financial) from three empirical studies analyzing profitability, efficiency, investment, output, and employment and it shows improvement in all categories. Megginson, Nash, and van Randenborgh (1994) conducted a study that compared the pre-and post-privatization performance of 61 firms in 32 industries in 18 different countries. The results showed a significant increase in profitability, output per employee, capital spending, and employment after privatization. ...
This paper examines the privatization of hospitals through mergers and acquisitions (M&A) using Kenya as the country of focus. It shows that M&A activities are increasing in Africa and there is a history of privatization of state-owned enterprises (SOEs) / parastatals in Africa and Kenya in particular, which started in the 1990s. With the changing dynamics, increasing pressure to achieve universal health and looking at the history of mergers and acquisitions there is no doubt that this is going to become an important phenomenon in Kenya in the near future.Privatization of hospitals, including public and not-for-profit (NFP), has been popular since 1980s in North America (U.S., Canada) and Europe (Germany, England). Privatization and M&A activities of hospitals in other countries such as India, China, Saudi Arabia, Africa and Kenya have also increased. The reasons for these trends are industrialization of developing countries, changing lifestyles, aging populations, longer life expectancy, technological advancement, growth of the middle class, increase of non-communicable diseases (NCDs) and inefficiency of public health systems. With the changing dynamics, it would appear there is a need for African countries to expand their private sectors, and privatization of healthcare is an attractive area for private equity firms and private hospital chains. Due to growth of the economy and the middle class, higher demand for healthcare services and particularly expansion of NHIF (National Hospital Insurance Fund) coverage, privatization of hospitals makes economic sense in Kenya.Knowledge of M&A among top leadership is crucial in determining its success or failure. Therefore, the literature review focused on property right, transaction cost, and institutional theory. Relevant M&A theories such as process, synergy, efficiency and disturbance theory were also reviewed.The research philosophy, methodology and design of this study was based on exploratory, post-positivism, deduction and utilized mixed methods (qualitative and quantitative) with focus on verifying the hypothesis. The population of this research included Level 4, 5 and 6 hospitals in Kenya, totaling 268 hospitals with at least 50 beds; the sample size was 158 hospitals. Proportionate stratified random sampling methodology was used to determine the sample size of each hospital level (Level 4, 137 hospitals; Level 5, 14 hospitals; and Level 6, 7 hospitals).The hypothesis that there is no relationship between top leadership (X) and the effectiveness of privatization of hospitals (Y) through M&A was tested and there was a strong and positive relationship between the dependent and independent variables (r=0.821), and the regression model was found to be reliable. The null hypothesis was rejected because of the results of the T-test (β1=0.925, t=9.757, p<0.005).It is recommended that similar studies be conducted in East and South Africa to enable researchers to perform comparative analyses in order to improve the body of knowledge.
... In addition, borrowing is the only avenue to raise funds, since SOEs do not have access to private investors and chronicle low profitability or even loss makes retained earnings hardly a viable funding source. Their findings of higher leverage in SOEs are consistent with Megginson, Nash, and Randenborgh (1994). In our research, leverage on average is 100.62% for the whole sample, 124% for SOEs, and 89% for non-SOEs. ...
... The techniques employed are ratio analysis, arithmetic mean, multiple regression t-test. (Megginson, Nash, & Randenborgh, 1994) compare the financial and operating performance of 61 companies in 18 countries that were privatized using financial indicators. ...
The primary objective of this paper is to serve as a case study to illustrate the
techniques used for performing financial statement analysis on a company. Hence,
the paper demonstrates the methods to be employed for conducting a Profitability
Analysis on SAIL through a combination of mathematical and statistical tools and
techniques.
This paper tests whether there is significant difference between critical measures of
profitability – return on capital employed, return on equity, gross profit margin,
operating profit margin and net profit margin. The study also tests whether the
variances of the above mentioned measures are homogenous. Basis the result from
this, appropriate multiple comparison tests for these measures were carried out. The
paper demonstrates the comparison with similar companies in the industry through
ratio analyses as well as statistical tests like ANOVA, Test of Homogeneity of
Variances and the Multiple Comparison Tests like the Bonferroni Test and Tamhane
Test.
The results suggest that the by following this method exhibited in the paper,
substantial information about the reasons behind the decrease in profitability of
SAIL have been demystified. Also, by analysing the peers of SAIL, the relative
position of the company’s profitability could be established.
KEYWORDS: ANOVA, Common Size Analysis, Du-Pont Analysis, Multiple
Comparison Test, Peer Analysis, Profitability, SAIL, Steel companies.
... Umer (2006) used CAMELS model to determine the impact of privatization on the financial performance of bank sector in Pakistan and found a positive impact of privatization on banks performances. Megginson, Nash, & Randenborgh (1994) compared pre and post operating and financial performance of 61 firms from 32 industries of 18 different countries during the period 1961 to 1989. Their Findings suggested that output, profitability and operating efficiency of the sample companies have increased after privatization. ...
... Further studies on privatization include the followings: Boubakri and Cosset (1998) used the MNR methodology for 79 companies from 21 developing counties and 32 industries over the period 1980-1992, their results were consistent with the Megginson et al. (1994), but performance improvements were generally even larger. D` Souza and Megginson (1999) examined offering terms, method of sale and ownership structure resulting from privatizing 78 companies, from 10 developing countries and 15 developed countries over the period of 1990-1994. ...
This study evaluates the financial and operating performance of 43 privatized Jordanian firms, which were privatized during the period 1995-2006. The main objective of the study is to examine whether privatization does improve firms' performance, and whether that improvement differs according to various sub samples. For that purpose, a wide range of accounting performance measures are used as proxies of performance, and the mean performance is calculated for both pre-and post-privatization periods. The empirical results of this study indicate that there is no significant increase in profitability after privatization at both full sample, as well as, sub samples level. However, the results showed that there is a significant increase in operating efficiency, capital expenditures and dividends achieved by all privatized firms following privatization. Conversely, there is a significant decrease in employment and liquidity for the privatized firms, while leverage has been decreased insignificantly following privatization. Finally, this study showed that firms' performance improvements were more preferable for the group of firms where government ownership exceeds 50% of the total firm before privatization, and for the group of firms with full privatization.
... Although accounting rates of return have their limitations as measures of business performance, Kay and Mayer (1986) claim that accounting ratios closely reflect economic rates of return and effectively serve investment decision makers and policy formulators at large. Following Boardman and Vining (1989), Megginson, Nash, and Van Randenborg (1994), Dewenter and Malatesta (2001), and Ng et al. (2009), return on assets (ROA), return on equity (ROE), and return on sales (ROS), derived, respectively, by dividing net income by assets, common equity, and sales, make up the three profitability measures. Undeniably, profitability could be a reflection of market power as opposed to efficiency. ...
This study investigates whether state ownership significantly affects the performance of publicly traded Chinese airlines over the 1994–2011 period. The sample consists of six listed Chinese airlines, five on the Shanghai Stock Exchange and one on the Shenzhen Stock Exchange. Panel regression test results display persistently a U-shaped relationship between state ownership and firm performance for the airline industry. Furthermore, the evidenced convex relationship holds true for both market and operating performance measures. Thus, Chinese airlines with mixed ownership perform worse than their heavily privately held or majority state-owned peers. We attribute the poor performance experienced by mixed-controlled Chinese airlines to the grabbing hand exerted by their government shareholders and the excessive agency costs associated with severe conflicts of interest between their managers and dispersed shareholders. The findings affirm and highlight the importance of control and ownership unambiguity. Given the Chinese government's ongoing intention to privatize state-owned enterprises (SOEs) and the demonstrated U-shaped relationship, the optimal course of action for Chinese policy makers and Chinese airline executives to follow in order to further improve the performance of the industry is to expedite the privatization process for all state-owned airlines to break away from their state owners and to become fully privatized. This study enriches finance literature in at least two aspects. It serves as the first attempt to study the impact of state ownership on the performance of Chinese airlines. It also sheds additional light on the dynamic between state ownership and the performance of newly privatized SOEs while adopting multiple performance indicators and performing panel regression tests under three estimation methods.
... At the global level, many comprehensive studies have been conducted to check the impact of privatization on the post privatization financial and operating performance of government-owned firms and the literature has shown mixed results. Megginson et al. (1994) compared the pre and post privatization financial and operating performance of 61 newly privatized firms from 18 countries representing 32 different industries. These firms were privatized through public offering mode and documented significant improvements in firm's profitability, real sales, capital expenditure, dividend payout ratios and overall operating efficiency. ...
The fact that government-owned firms are typically less proficient or at least less gainful than private owned firms is widely hypothesized. Therefore, the disinvestment policy aims at dropping the participation of the public sector in the economic actions of the country in order to support private sector. The research endeavour set out to empirically examine the financial and operating performance of 15 Central Public Sector Enterprises (CPSEs) disinvested in India through public share offering mode during 2003–2012. Sample firms represent four cognate groups, that is, manufacturing, mining, electricity and service sectors. Through ratio analysis, different ratios such as return on assets, return on equity, sales efficiency, net income efficiency, debt equity, dividend payout, real sales and employment levels have been computed. Using the traditional pre versus post privatization comparisons and panel data estimation techniques, researchers have found significant increase in sales efficiency and net income efficiency, that is, overall operating efficiency, whereas insignificant results have been witnessed in the case of profitability position. This study provides new empirical evidence about performance changes in CPSEs disinvested through involvement of retail investors, that is, public offering mode in Indian economy.
The paper examines the impact of Corporate Governance on the operational efficiency of privatized Cement Company of Northern Nigeria. The variables studied were operational efficiency as dependent variables and fourteen Corporate Governance proxies as independent variables. Data was collected from secondary source, and the statistical tools employed in the Methodology were Descriptive Statistics, and OLS regressions. The results suggest Cement Company of Northern Nigeria has higher operational efficiency post privatization and the Operational efficiency ratio has positive and significant relationship with workforce and percentage of management staff. However, state ownership and privatization policy with time have negative and significant relationship with operational efficiency. The researcher arrived at the conclusions that corporate governance has significant impact on operational efficiency of Cement Company of Northern Nigeria despite the macroeconomic challenges in the economy. The study recommends Nigerian government need to improve macroeconomic situation of the country particularly, the issue of exchange rate and inflation to improve operational efficiency. The new corporate governance need to adopt more strategies on; monitoring, inventory management and creating benchmark to enable them withstand competition. The corporate governance also need to introduce business analytics and machine learning software that can optimize operations by predicting trends and automating decision-making processes, thereby reducing time and resource waste.
A review of the literature on privatizations leads to mixed and contradictory conclusions concerning the effect of privatizations on the economy. Therefore, the conclusions of each study must be contextualized and adapted to each reality, so that their implementation in practice does not have negative effects on society. In the specific case of Costa Rica, some individuals have advanced the idea that the sale of state-owned assets would pay a large part, or all, of the country's debt. This is untrue, since the impact of such sales would be miniscule; it seems that those who propose thia as a “cure-all remedy” either did not make the necessary calculations, or are carried away by ideological approaches or simply by the imitation effect.
Nous étudions comment les facteurs politiques, économiques et institutionnels sont liés à la décision d'un pays à privatiser les banques publiques. En utilisant un panel de 16 pays de la région MENA dans une période de 24 ans allant de 1988 à 2011, nous constatons que les facteurs politiques et institutionnels affectent significativement la probabilité de la privatisation des banques publiques. Plus précisément, la privatisation bancaire est plus probable lorsqu'un gouvernement est plus responsable envers son peuple. En revanche, aucun de nos variables économique influence sur la décision de la privatisation bancaire à l'exception de deux facteurs : la qualité des banques et la crise bancaire qui sont deux déterminants importants de la privatisation des banques publiques dans cette région.
El análisis de la literatura sobre privatizaciones lleva a conclusiones mixtas y contradictorias sobre sus efectos sobre la economía. Por tanto, cada estudio debe matizarse y adaptarse a cada realidad, para que su implementación en la práctica no tenga efectos negativos sobre la sociedad. Precisamente en el caso de Costa Rica algunos han vendido la idea que la venta de activos del estado soluciona gran parte -y algunos la solución- de la deuda del país y con ello, el déficit fiscal, lo cual no cierto, pues el impacto de las ventas es minúsculo y pareciera que los que lo proponen como la “pomada canaria”, o no hicieron los cálculos respectivos o se dejan llevar por enfoques ideológicos o simplemente un efecto imitación.
Business management scholars have propositioned employee share ownership as a concept bearing different perspectives. Business management practitioners have implemented the model in varying degrees suiting their organizational needs depending on the context of the organization at the particular time. Empirical research on the impact, role, and the position of employee share ownership (ESO) has produced varying results leading to far reaching conclusions as to the importance and significance of the ESO on an organization and especially at a time when a firm is undergoing through crisis. The concept of employee share ownership has led to the development of employee share ownership plans which are implemented as direct stock/share allotment, bonuses, or profit-sharing models and plans. The employer or the principal capital holder bears an exclusive discretion in making the decision of who would receive any of these options.
A large body of literature shows that oil wealth leads to poor quality of institutions. The existing literature, however, neglects the dimension of ownership. This article provides the first empirical investigation of whether ownership of oil matters for institutional quality. Using a novel database on ownership structures, it analyzes a sample of 38 oil-rich developing countries during 1984–2005. The estimation results show that ownership matters and that private ownership of oil leads to a better quality of institutions than state ownership. The results are useful for oil-rich countries in adopting appropriate policies to maximize the benefits of oil to the nation.
This article presents a multi-level analysis of key economic indicators of the Russian textile industry performance. The authors focus on the capital-labor ratio analysis describing the production technology. The article suggests calculation of the capital-labor ratio in the textile industry for 2015 and 1900. Research findings show an increase of this indicator during the last 150 years of industry existence by only 1.5 times. Analysis of data on the value structure of fixed capital in 1900 suggests that the cost of foreign equipment employed in textile production is 3 times higher than the cost of domestic equipment. These findings resulted in a hypothesis about the historical trend towards import of equipment and technologies from more technologically developed countries. Further analysis of the materials "On the development of the linen industry based on the Materials for Statistics of the Russian Empire of 1859" confirms this hypothesis. The next phase of the analysis deals with the relationship between the ownership type and the profit rate. Correlation analysis tends to support the hypothesis that there is a positive relationship between the state ownership and the profit. The conclusion is made that there is a need for the incentives for attracting investment in the textile industry, with the average profit margin for the industry among the crucial parameters.
Research Question/Issue
Despite the benefits of privatization (i.e., divestiture of government‐owned enterprises), governments still own substantial stakes in economically important firms. Given public concern about excessive compensation and frequent government responses, this paper compares the level and structure of CEO compensation in privatized firms, including those still partially owned by governments, to firms never owned by the government.
Research Findings/Insights
Using a multinational sample of firms, we find that privatized firms have lower total CEO compensation than private firms never owned by governments. CEO equity‐linked wealth in privatized firms is less sensitive to stock performance, and equity compensation is negatively related to government ownership stakes. Privatized companies engage in less risk‐taking than non‐privatized companies, suggesting that government risk aversion could explain differences in CEO compensation.
Theoretical/Academic Implications
This study finds that the role government ownership plays in the level and structure of executive compensation is broadly consistent with pay regulations governments periodically impose. It provides empirical support for the argument that government owners are risk‐averse and associated with lower equity‐linked executive pay, which discourages CEO risk‐taking.
Practitioner/Policy Implications
This study encourages corporate boards to consider the degree of government involvement in their firms when setting CEO compensation packages and policies. Government concerns about excessive compensation may require boards to find other ways to incentivize CEOs, particularly given the weaker governance linked to state‐influenced firms. Additionally, governments should analyze their influences on CEO compensation, and how these can affect performance, when considering their ownership stakes in public companies.
We study the role of private debt financing in reducing government transfers and information costs in a state‐owned firm. We show that debt contracts allow the government to reduce socially costly subsidies by letting underperforming state‐owned firms default. When the firm has private information, the government uses debt to reduce the firm's information rents. The option of default and privatization allows the government to stop subsidizing the firm. We identify the conditions under which information costs outweigh privatization costs and a positive debt level benefits governments.
Determinant of Downward Auditor Switching. This study examines the factors that influence downward auditor switching in five ASEAN countries. Fixed effect logistic regression was used as analytical method. This study found that opinion shopping occurred in ASEAN, especially in distress companies. Companies with complex businesses will retain the Big Four auditors to reduce complexity and audit costs. Audit and public committees serve as guardians of auditor quality. On the other hand, shareholders failed to maintain audit quality. It indicates that there is entrenchment effect in auditor switching.
As Initial Public Offering (IPO) is a significant milestone in the financial strategy of a firm, this study aims to evaluate performance of IPOs using multiple measures including accounting-based performance (ABP), value-based performance (VBP) and overall performance (OP) in the pre-and post-IPO periods. Therefore, we present two combined approaches based on a compromise MCDM method-VIKOR and objective weighting methods-CRITIC and MW (Mean Weight) to evaluate and rank IPOs to help shareholders with understanding on how their performance changes under the different measures. Since the compromise solution (one or a set) proposed by VIKOR depends substantially on criteria weights, VIKOR-CRITIC can show more realistic results because of the differential weights assigned to criteria by CRITIC. In this study, a case study is conducted in order to evaluate the performance of Turkish IPOs based on ABP, VBP and OP measures using the combined methods. The results show that the compromise solution results obtained by VIKOR-CRITIC may be a guideline for investors in making more profitable investment decisions before leaping into any investment decision.
First published online: 27 Mar 2017
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