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The Financial and Operating Performance of Privatized Firms During the 1990s
The Journal of Finance
Abstract
This study compares the pre- and postprivatization financial and operating performance of 85 companies from 28 industrialized countries that were privatized through public share offerings for the period from 1990 through 1996. We document significant increases in profitability, output, operating efficiency, and dividend payments-and significant decreases in leverage ratios-for our full sample of firms after privatization, and for most subsamples examined. Capital expenditures increase significantly in absolute terms, but not relative to sales. Employment declines, but insignificantly. Combined with results from two previous, directly comparable studies, these findings strongly suggest that privatization yields significant performance improvements. Copyright The American Finance Association 1999.
... 3 While the costs and benefits of privatization have received substantial attention, few large sample studies consider the effect of privatization on individual workers (Megginson and Netter (2001), Estrin et al. (2009), Earle (2014). Most studies focus on firm-level employment only (D'souza and Megginson (1999), LaPorta and Lopez-de Silanes (1999), Brown, Earle, and Vakhitov (2006), Chong, Guillen, and López-de Silanes (2011), Dinc and Gupta 3 Our paper also contributes to the broader labor and finance literature (Pagano and Volpin (2005), Atanassov and Kim (2009), Cronqvist et al. (2009), Maksimovic, Phillips, and Prabhala (2011), Simintzi, Vig, and Volpin (2015, Dessaint, Golubov, andVolpin (2017), Mueller, Ouimet, andSimintzi (2017), Subramanian and Megginson (2018)). This literature uses matched employeremployee data to study worker-level effects of other ownership changes such as mergers and acquisitions (Lagaras (2025)), corporate diversifications (Tate and Yang (2015)), and private equity buyouts (Agrawal and Tambe (2016), Olsson and Tåg (2017), Antoni, Maug, and Obernberger (2019)). ...
... For instance, Megginson and Netter (2001) survey many firm-level studies on privatization and conclude that productivity and profitability usually increase. Our results also align well with those of D'souza and Megginson (1999) on profitability and productivity in 28 countries and those with LaPorta and Lopez-de Silanes (1999) in Mexico on profitability and employment. ...
Privatization of state‐owned enterprises is on the agenda across the globe. Using Swedish data covering two decades, we show that productivity gains and headcount reductions are associated with economic costs for incumbent workers. Workers experience income losses and higher unemployment, but half of the losses are covered by the social safety net. We also find small positive effects on entrepreneurship and cash holdings but no meaningful effects on other labor market, family, health, or household finance outcomes. Productivity improves when the CEO is replaced, and the gains outweigh workers' income declines by a factor of between two and six.
... In response, the downsizing of public enterprises became a strategy to create space for the private sector to take the lead in driving economic growth and reduce costs associated with subsidizing struggling enterprises. Souza et al. (1999) argued that factors such as insufficient returns on investment, low production efficiency, and evolving global policies pushed governments to implement economic reforms. Ramamurti (1992) noted that economic liberalization gained global acceptance in the 1980s, impacting both rich and poor countries, large and small, with governments adopting a wide range of ideologies. ...
... The Privatization Act of 1994 outlines specific privatization models, including the sale of assets and businesses, share sales, and sale-cum-lease arrangements. Souza et al. (1999) argue that factors such as low returns on investment, poor production efficiency, and changing global policies prompted governments to initiate economic reforms. Arun and Nixson (2000) contend that the primary goal of disinvestment was to reduce the public sector's borrowing needs while restructuring and rationalizing public sector enterprises (PSEs) more generally. ...
Public Enterprises (PEs) were established globally after 1930 with the goal of accelerating national economic growth. These entities were seen as key drivers of socio-economic development across different political systems. However, by the late 1970s, the financial and operational inefficiencies of PEs led to an increased economic burden on public funds. In the early 1980s, a new concept emerged globally aimed at economic reforms, known as economic liberalization, open market policies, and globalization. Privatization became a key tool for implementing this concept, with the objective of transferring public sector authority to the private sector to improve the financial and operational performance of PEs. Since 1992, the government of Nepal has followed this global trend, privatizing 30 PEs by 2020. Of these, 22 PEs were privatized through methods such as share sales and liquidation, while the remaining ones were privatized through business sales, management contracts, or dissolution. Among the privatized PEs, 11 are still operational, with 8 having been privatized via the share sale method. Between 1992 and 1996, as well as 2002 to 2006, a significant portion of PEs were privatized. However, privatization efforts have slowed down after 2008. This analysis is based on secondary data, and the findings are presented using percentage calculations.
... We analyse the 1996-99 performance effects of the main patterns of ownership and their changes after large-scale privatization and early post-privatization ownership 7 The leading studies in this area (e.g., Boubakri and Cosset, 1998;Frydman et al. , 1999;D'Souza and Megginson, 1999) are forced by the paucity of data to use pooled cross-country estimations. On the other hand, using cross-country data Boubakri, Cosset and Guedhami (2005) show that the positive effect of ownership concentration on firm performance is stronger in countries with weak investor protection. ...
... The key studies are indeed based on small samples related to short periods around privatization. These includeFrydman et al. (1999), D'Souza andMegginson (1999),Boubakri and Cosset (1998),Barberis et al. ...
... Los estudios empíricos de muestreos grandes sugieren que inclusive en mercados imperfectos, las empresas privatizadas exhiben ganancias comparadas de desempeño relevantes (D'Souza y Megginson, 1999). Además, en su extensa revisión de la literatura sobre economías en transición, Djankov y Murrell (2002) hallan que la privatización está fuertemente asociada con la reestructuración empresarial en vista de mejorar la performance, excepto en el caso de la ex Unión Soviética. ...
... Los metaestudios revisados en este ensayo señalan que la privatización generalmente aumenta los recursos disponibles en la economía, incluidos aquellos disponibles para los gobiernos. Además, el estudio de D'Souza y Megginson (1999) revisa 78 empresas privatizadas en 25 países del mundo, y revela disminuciones insignificantes del empleo en esos países para el mercado laboral en su conjunto. Esto demuestra entonces que la reducción del empleo en los sectores industriales privatizados es más bien temporal, y que, gracias al posterior crecimiento y valor agregado de las empresas privadas reestructuradas, este se recuperará, reabsorbiendo así la mano de obra dentro de una economía más dinámica. ...
Resumen: En este ensayo se examina el debate económico acerca de las empresas privadas (POEs por sus siglas en inglés) y las empresas públicas (SOEs por sus siglas en inglés). A nivel internacional han resurgido ideas respecto al "Estado empresario" y a nivel nacional han surgido nuevas voces que promueven un rol más activo del Estado dentro de la producción económica. Ante estas ideas de reintroducir al Estado dentro de la economía y del desarrollo industrial, resulta pertinente revisar qué nos dicen la evidencia empírica y la teoría económica acerca del rol del Estado en la economía y su posible eficiencia. Para ello, en este trabajo se estudia de forma amplia tanto la teoría como la evidencia económica en cuanto a la eficiencia de las empresas públicas versus las empresas privadas. El artículo primero proporciona un marco conceptual, basado en la teoría económica, para comprender ese debate. Segundo, se revisa la evidencia empírica a nivel mundial para entender qué nos revela la historia y la evidencia acumulada en los últimos cuarenta años en torno al debate POEs versus SOEs. El ensayo concluye con ciertas reflexiones y planteando dudas sobre el posible nuevo rol del Estado dentro del desarrollo en Chile. Palabras Clave: Empresas estatales; empresas públicas; privatización; Estado emprendedor; eficiencia económica. Abstract: This essay examines the economic debate around Privately Owned Enterprises (POEs) and State-Owned
... [45]). Statistical tests of before and after performance conduct a t-test for significant differences in performance metrics before and after privatization (following [11]). Social cost benefit analyses of reform (following [20]) look at reform as an investment which has costs and benefits. ...
... 9 These variously highlight the need to monitor the reasonableness of company profitability, the actual trend in prices and the benchmarking of hard to interpret prices against other jurisdictions. AER [2] includes generation investment monitoring (MW entry and exit by technology) , 10 comparison of market concentration (average HHI per 5 mins) 11 and the presence of pivotal electricity generators (percentage of time 1, 2 and 3 generators were pivotal) . 12 This highlights a particular concern in the Australian National Electricity Market (NEM) about the strategic closure of certain generator plants which then created capacity scarcity driving up prices. ...
This paper draws on international experience to examine how the ongoing power sector reform (PSR) in China since 2015 should be measured and assessed. We proceed by reviewing some relevant international reform experience and then applying this to the Chinese context. Thus we focus on some of the extensive previous literature which has documented reforms in cross-country and in single country studies. We pay particular attention to the European Union (EU) single electricity market, which is the largest integrated electricity market in the world. We also look at a social cost benefit analyses of UK electricity market reforms and how these might applied in a given Chinese province. We go on to examine the actual price impact evidence from two leading provinces – Guangdong and Zhejiang – on the overall price effect and on exactly how those price effects have been achieved. We then offer some insights from the extensive regulatory reporting by leading regulators on market performance that is relevant to PSR in China based on excellent annual reporting from the UK, Australia and the US.
... mando a literatura intemacional sobre os efeitos da privatiza^ao no desempenho das empresas desestatizadas, o prisma analitico costuma ser bem diferente do que e aqui proposto. O objetivo central da maior parte daqueles trabalhos tern sido testar a significancia estatistica da mudanga apos a privatizagao de alguns indicadores basicos de desempenho.(D'Souza & Megginson, 1999) Embora em certos casos esteja presente a preocupagao de ajustar os indicadores de maneira a tentar depura-los dos efeitos das oscilagoes macroeconomicas(Boubakri & Cosset, 1998; Eraquelli & Eabbri, 1998), a op^ao metodologica de trabalhar com uma amostra de empresas que propicie ampla cobertura, tanto em termos de setores quanto, freqli ...
The Brazilian experience with the privatization policy is already long enough to allow an evaluation of its results, at least for the sectors in which privatization began earlier, such as steel industry. Fast and considerable improvement in the financial performance of this industry has been used as evidence that the efficiency goals were achieved. Nevertheless, a qualitative analysis of the privatization impacts in this industry's structure and competition (Pinho & Silveira, 1998) suggests that exogenous events contributed strongly to the steel companies results. This paper intends to evaluate quantitatively the importance ofthese factors on the largest steel privatized companies. Therefore, it will be developed a methodology to analyze the problem, which will be applied on the available information.
... Por outro lado, alguns pesquisadores destacam os benefícios do processo de privatização. D'Souza e Megginson (1999), por exemplo, afirmam que a privatização resulta em melhorias significativas no desempenho, como aumento da lucratividade, produção, eficiência operacional e pagamento de dividendos. O desempenho superior das empresas após a privatização está associado a mudanças na liderança, opções de ações para a administração, redução do número de funcionários e reestruturação financeira (Andrews e Dowling, 1998). ...
Tendo em vista que a Eletrobras é uma empresa de destaque no cenário elétrico brasileiro, o objetivo desta pesquisa consiste em verificar o valor de mercado da empresa Eletrobras por meio do método de valuation EVA/MVA. Os resultados revelam uma disparidade entre o valor de mercado da empresa e sua valoração pelo referido método, indicando uma possível falta de alinhamento do mercado com o valor intrínseco da companhia. Apesar da privatização recente e dos impactos da pandemia, ocasionada pela Covid-19, que introduziram instabilidade no mercado, a análise evidencia uma destruição de valor econômico em alguns períodos, enquanto sugere um ambiente propício para investimentos, com o valor estimado da ação superando o valor de mercado em certos anos. No entanto, verifica-se que a discussão em torno da possível reestatização da empresa, impulsionada pelo novo contexto político no Brasil, acrescenta uma camada de incerteza que demanda atenção dos investidores. Sugere-se, desse modo, que futuras pesquisas se aprofundem na análise dos efeitos da privatização da Eletrobras ao longo do tempo, bem como explorem o impacto de outros eventos relevantes sobre seu valor de mercado e sua valoração. Palavras-chave: Valuation; Avaliação de Empresas; Eletrobras. Área Temática: Contabilidade Financeira e Mercado de Capitais
... Studia nad efektywnością państwowych jednostek gospodarczych mają długą tradycję (De Alessi, 1983;D'Souza i Megginson, 1999;Levy, 1987), choć wynikające z nich wnioski nie zawsze są jednoznaczne. Ostatnimi czasy można zauważyć wzrost ich efektywności nie tylko w warunkach polskiej gospodarki, lecz także innych krajów wysokorozwiniętych z właściwie ukształtowaną strukturą instytucjonalną (Bałtowski i Kwiatkowski, 2019). ...
Celem artykułu jest odpowiedź na pytanie, czy udział Skarbu Państwa w akcjonariacie spółek ma wpływ na kształtowanie się bieżącego, efektywnego obciążenia podatkiem dochodowym od osób prawnych. W pracy weryfikowana jest hipoteza, że efektywna stawka podatku dochodowego (ETR) dla spółek Skarbu Państwa jest wyższa niż w innych przedsiębiorstwach. Badanie zależności pomiędzy efektywną stawką podatku dochodowego a udziałem Skarbu Państwa w akcjonariacie jest przeprowadzane za pomocą regresji liniowej, a parametry modeli ekonometrycznych są estymowane przy użyciu klasycznej metody najmniejszych kwadratów. Analiza dotyczy 151 spółek notowanych na Giełdzie Papierów Wartościowych, reprezentujących 9 sektorów gospodarki, w latach 2004–2021. Analiza danych w ujęciu przekrojowym dla kolejnych lat wskazuje, że ETR tylko w niektórych okresach jest istotnie statystycznie zależny od udziału Skarbu Państwa w akcjonariacie, przy czym zależności te są zarówno dodatnie, jak i ujemne. Korelacja dodatnia pojawia się w latach 2007, 2013 oraz 2017, natomiast ujemna w latach 2008 i 2020. W tych dwóch latach wymienionych jako ostatnie wskaźnik koniunktury gospodarczej spadał najszybciej, w pierwszym wypadku z powodu kryzysu zaufania do instytucji finansowych, w drugim – z powodu pandemii COVID-19. W pozostałych wskazanych latach, gdy koniunktura gospodarcza była dobra, podmioty ze znaczącym udziałem państwa w akcjonariacie wykazywały wyższą efektywną stawkę podatku dochodowego, co było w interesie ich głównego właściciela. Poczynione obserwacje skłaniają do refleksji na temat zakresu władztwa państwa w sferze dominium i respektowania praw akcjonariuszy mniejszościowych.
... La literatura empírica ha proporcionado mucha evidencia de que las empresas privadas son mejores en los negocios porque aumentan la rentabilidad financiera y el manejo operativo (Chong & Silanes, 2005;DeWenter & Malatesta, 2001;D'souza & Megginson, 1999). Por tanto, pareciera que existen pocas dudas sobre la eficiencia en las empresas privatizadas; sin embargo, los impactos sobre el crecimiento, la distribución del ingreso y el empleo no son tan claros. ...
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.
... In the UK, an outstanding feature of this turn was a 'massive wave' of privatisations, described as 'the most striking policy innovation since 1979', which 'pioneered the way in showing how to do this in a reasonably orderly and, for capital, profitable way', and was then 'emulated throughout the world in the 1990s ' (ibid., 60-61;Riddell, 1991, p. 87;Shaoul, 1997, p. 382;Babb, 2005). At the end of that decade, supporters of privatisation could refer to it as a 'new-found orthodoxy [which had] been embraced as an instrument of political economy by governments of all political stripes' (D'Souza andMegginson, 1999, p. 1397). ...
... Labor investment efficiency is our dependent variable. We follow the extant literature (Boubakri et al., 2005;Bound et al., 2015;D'souza and Megginson, 1999) using net income per employee as a measurement of labor investment efficiency. The net income per employee is calculated by dividing net income by the total number of employees. ...
... Por un lado, pareciera que las primeras privatizaciones si buscaban alguno 128 de los aspectos teóricos defendidos, como por ejemplo la eficiencia, pero los países que las 129 implementaron posteriormente fueron para copiar a los países que lo hicieron Existen muchos estudios sobre el posible efecto de las privatizaciones sobre las economías.Estos pueden analizar en términos muy generales cuatro posibles impactos:Por otra parte, algunos estudios enfatizan que existen aspectos de política 140 complementarios a las privatizaciones que pueden garantizar el éxito o no de las mismas, Creado a partir de la obra en http://www.revistas.una.ac.cr/index.php/economia tal como la regulación y la estimulación de la competencia, pues de no darse los procesos La literatura empírica ha proporcionado mucha evidencia de que las empresas privadas son 144 mejores manejando los negocios en otra hora públicos, aumentando la rentabilidad D'souza &Megginson, 1999). Por tanto, pareciera que existen pocas dudas sobre las 147 mejoras de eficiencia en las empresas privatizadas. ...
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.
... Vários artigos utilizaram esse teste de amostras pareadas na comparação do desempenho financeiro e / ou operacional de empresas em dois momentos distintos (e.g. Boubakri, Cosset, & Guedhami, 2005;D'Souza & Megginson, 1999;Ghulam, 2017;Lima, Resende, & Rasenclever, 2000;Wei et al., 2003). Contudo, até então, não são conhecidos estudos que o utilizem na comparação da situação do capital de giro antes e depois de uma crise econômica. ...
RESUMO Objetivo: Neste artigo, objetivou-se analisar se ocorreram alterações no capital de giro de empresas de capital aberto no contexto da Crise Econômica Brasileira. Fundamento: Recorreram-se às variáveis e estruturas / situações financeiras do Modelo Dinâmico. Método: Considerou-se uma amostra de 89 empresas com ações listadas na B3 e o período desde o segundo trimestre de 2011 até o primeiro de 2017. Utilizando dados de 2.136 balanços patrimoniais, foram calculadas as variáveis (Capital de Giro, Necessidade de Capital de Giro e Saldo em Tesouraria) e identificadas as estruturas / situações financeiras do Modelo Dinâmico (I-Excelente, II-Sólida, III-Insatisfatória, IV-Péssima, V-Muito ruim e VI-Alto risco). As alterações nos percentuais de empresas classificadas em cada uma dessas estruturas foram analisadas. Avaliou-se estatisticamente se ocorreram diferenças significativas nas variáveis do Modelo Dinâmico durante a crise. Resultados: Os resultados evidenciaram que, durante a crise, os balanços tenderam a mudar para as estruturas financeiras consideradas menos desejáveis. Além disso, observou-se que a piora na situação do capital de giro das empresas ocorreu em variáveis específicas (Capital de Giro e Saldo em Tesouraria). As contas financeiras e operacionais do capital de giro tenderam a exibir dinâmicas distintas quando as empresas se defrontaram com o contexto de crise.
... Although state ownership tends to be higher in emerging economies and those with poorer protection of property rights (La Porta et al., 2002), it is also frequent in developed countries, including the USA and the UK, where it resulted from market failures. State ownership is occurring typically in industries characterized by natural monopolies and resources or industries of strategic interest, such as defence, or where firms are simply 41 Other sources provide a number up to 60-80% (see note 14) considered too big to fail (banking, insurance etc. Megginson, 1999;Shleifer, 1998) and ...
Research on firm’s investment behaviour is central to corporate finance. Investment policy can be explained by many corporate finance theories involving the choice of financing (debt vs. equity vs. internal funds), agency costs (management vs. monitoring blockholders), asymmetric information (between management and providers of external finance) and moral hazard (the choice of level of risk of an investment project). Research on governance focuses on whether internal and external governance mechanisms improve firm value and profitability, and shareholder wealth. This focus on profits and returns continues to dominate the management literature, despite the widespread recognition that investment behaviour is at the basis of firm growth and productivity and contributes largely to shareholder value. Studying investment behaviour allows assessment of whether the controlling owners are re-investing their gains in long-term assets or taking them out as cash or dividends. These alternatives have drastically different implications for firm productivity growth and the dynamism of the economy. This thesis addresses this issue and investigates the question of how governance influences investment behaviour. I argue that investment depends not only on individual governance mechanisms but also on a combination of these mechanisms. In order to test and provide evidence supporting this argument, this thesis contains three essays that consider the effects on corporate investment behaviour of transparency and disclosure (TD), ownership networks, blockholders and board composition, and studies the effects of substitutability or complementarity between these governance mechanisms. The Russian context serves as an appropriate setting to examine these effects since governance plays a bigger role in this emerging economy than in a developed economy.
... We define the mixed-ownership reform as a state-owned enterprise increasing non-state ownership, thus reducing state-owned capital in the share structure. The introduction of non-state ownerships among the stateowned enterprises (SOEs) are likely to improve corporate performance (Megginson et al., 1994;(Shleifer et al., 1997) Boubakri and Cosset, 1998;D'souza and Megginson, 1999), alleviate principal-agent contradiction, information asymmetry and implicit government guarantee (Borisova and Megginson, 2011;Boubakri et al., 2005;Denis and McConnell, 2003;Guedhami et al., 2009), optimise the corporate governance structure (Boateng and Huang, 2017) and increase cash holdings (Chen et al., 2018). However, when an SOE reducing its state-owned capital may also negatively impact the firm, such as reducing the enterprise resources endowment (Liang et al., 2012;Warner et al., 2004;Yiu et al., 2007) and strengthening the corporate financing constraints (Firth et al., 2009;Megginson et al., 2014;Warner et al., 2004). ...
We find a significant negative relationship between a firm's mixed-ownership reform intensity ratio and the degree of corporate tax avoidance in China between 2003 and 2018. The path analyses demonstrate the negative relationship is through the channel of a firm's financial constraints and analysts' earnings forecast dispersion. Furthermore, our main results are more pronounced for firms with a high level of media coverage and located in a region of weak tax enforcement or high willingness of government decentralisation. Finally, our results remain significant after alleviating a series of endogenous tests and robustness tests. We contribute to the literature to understand the causes of a firm's tax avoidance behaviours and the consequence of the mixed-ownership reform in China.
... The current paper also relates to studies on the effects of privatization on firm performance. Many studies find that privatization, partial or full, helps public firms increase profitability (Boubakri et al., 2005;Claessens & Djankov, 1999;D'Souza & Megginson, 1999;Xu & Wang, 1999), enhance sales or output (Claessens & Djankov, 2002;Smith et al., 1997) and promote labour productivity or TFP (Brown et al., 2006;Earle & Telegdy, 2002;Jefferson & Su, 2006;Li & Xu, 2004;Sun & Tong, 2003), while other researchers find that the effects of ownership transformation per se are quite weak in many countries and vary with the types of owners it gives control to (Hanousek et al., 2004;Jones, 1998;Manzetti, 1999;Omran, 2004;Puntillo, 1996). In particular, efficiency enhancing is more pronounced when the firm is sold to outsiders rather than insiders (Earle & Telegdy, 2002;Frydman et al., 1999;Smith et al., 1997), and control relinquishment by the government is crucial for efficiency gains in privatized firms (Boubakri et al., 2005). ...
This paper empirically studies the occurrence and extent of asset stripping via undervaluing public assets during the mass privatization of state‐owned and collectively owned enterprises in China. Using three waves of a national survey of private firms, we provide evidence that state‐owned and collectively owned assets were substantially underpriced, indicating the presence of corruption during privatization. Further analysis shows that the extent of underpricing is more severe in regions with less market competition or weaker property rights protection, and more pronounced for intangible assets such as intellectual property rights and land use rights. When comparing firm efficiency between privatized firms and de novo private firms, we find that the former group continues to enjoy considerable preferential treatments, yet significantly underperforms the latter, possibly due to continued government control and intervention. Finally, we provide evidence that insider privatization is an important source of corruption during the privatization process.
We examine government decision‐making by studying Chinese local government financing vehicles (LGFVs), an often‐criticized funding and investment channel. We find an inverted U‐shaped relationship between LGFV diversification and subsequent local economic growth confirmed by identification using policy and regulatory events. The inverted U‐shape is stronger when local economic development or government indebtedness is higher. The degree of diversification reflects career concerns and decision‐making biases of local political leaders. Thus, bad economic outcomes follow when local governments venture beyond public services, borrow aggressively and invest in too many businesses. Our findings echo the empirical literature on corporate conglomerates.
This paper examines the relationship between shareholder governance and auditor choice. By exploiting a setting where non‐state‐owned shareholders are allowed to purchase shares and have delegates in the management team and the board of directors and supervisors of state‐owned enterprises (SOEs) in China, we find that non‐state‐owned shareholder ownership and engagement in firm operations significantly reduce the propensity of SOEs to hire a Big 4 external auditor. This relation is further found to be more pronounced for firms with stronger alternative governance mechanisms and for firms with higher agency costs. Overall, our findings support the notion that non‐state‐owned shareholder governance partially substitutes external auditing.
The consensus in recent times is that state-owned firms are not as profitable as their private counterparts. Therefore, disinvestment policies are put in place to decrease the government's involvement in the economy and encourage private sector participation to increase the performance of firms. The present study examines the profitability, financial performance, and operating performances of state-owned utility sector firms in India that were successively disinvested through public offering mode from 2011 to 2020. Using a sample of the top ten utility sector firms listed in the National Stock Exchange, in 2023, the firm performance is assessed through a range of financial ratios, including return on equity return on sales, return on assets, sales efficiency, net income efficiency, and leverage. The Wilcoxon rank test compares the firms' before and after disinvestment performance. Panel data techniques have been used to evaluate the impact of disinvestment on performance indicators. The findings show a significant enhancement in the financial performance of the sample firms, while there is an insignificant change in profitability and operating performance. The current study provides new empirical findings on how ownership reforms through disinvestment have affected the performance of state-owned utility sector firms in India.
The paper investigates the application of Tobin’s Q model in assessing the impact of corporate governance on firm value of cement industry. The variables studied were Tobin’s Q as firm value’s proxy (dependent variable) and corporate governance proxies as independent variables. Data was obtained from the secondary source, and the statistical tools employed in the Methodology were; Performance Trend Analysis and OLS regression. Trend analysis result shows that, post-privatisation has higher firm value. Inferential statistics result suggests that, Average Minority ownership, average percentage of executive directors, average foreign ownership, average board size, average percentage of non-executive directors, average percentage of management staff and average workforce have a positive and significant impact on Cement industry’s performance (Tobin’s q). However, average total market value of shares, institutional ownership and privatisation have negative and significant impact on the Cement industry’s market value while, State ownership has positive and insignificant impact on market value of cement industry. In conclusion, the result of inferential statistics has rejected the null hypothesis that corporate governance does not have significant impact on the performance of Cement industry. Admirably, the result confirmed the findings of the performance trend analysis result. The study recommends that cement industry need to; introduce effectives mechanisms of protecting the overall interest of existing shareholders and potential investors, create a strong corporate governance practice that is value-oriented and ensures economic efficient method of production to maximize earnings per share as well as timely dividend payment, the board of directors should increase the numbers of independent audit committee in order to improve transparency, timely and accurate information flow and prudent financial statement and corporate governance reporting system.
Most privatizations in Canada occurred in the 10-year period from the mid-1980s to the mid1990s, and while many of the remaining candidates are both politically and economically problematic, the Harper government has signalled its renewed interest in more privatizations. This paper, written by two of Canada’s leading experts on the subject, comprehensively assesses hard data from the earlier privatizations in Canada, including sectors such as energy, transport and telecommunications. They find that the overall impacts have been largely positive, in many cases impressively so. Key economic indicators such as capital expenditures, dividends, tax revenues and sales per employee tended to increase, while others such as employment initially fell, only to rise again over the long term. Ultimately, most of the privatized firms continue to operate efficiently, making them positive contributors to Canadians’ social welfare through the provision of increased economic opportunities, higher profits and taxes. Drawing on lessons learned, the authors propose a common-sense framework to guide future privatizations and ensure all Canadians derive the maximum possible benefits from them. No Canadian government has ever formulated such a plan for a privatization regime, making this paper a must-read for anyone with a stake in the future of Canadian business.
Academic literature has made an effort to demonstrate the positive effects of privatisation reforms on government performance and economic growth. However, there is no sufficient evidence to support the benefits of privatisation in terms of government spending efficiency. This study analyses the correlation between privatisation and government spending efficiency. Our empirical results do not support a positive effect of privatisation on government spending efficiency. These findings are relevant because they suggest that, although privatisation has been usually seen as a tool to balance public finances, it does not mean that government spending efficiency will be higher after privatising State‐owned enterprises.
Mazkur maqolada davlat ishtirokidagi korxonalarning ta’rifi va huquqiy maqomi, O‘zbekiston iqtisodiyotidadavlat ishtirokidagi korxonalarning o‘rni yoritilgan. Davlat ishtirokidagi korxonalarni aniqlashning xalqaro amaliyotdagita’riflari ko‘rsatib o‘tilgan. So‘nggi yillarda davlat ishtirokidagi korxonalarni transformatsiya qilishning asosiy yo‘nalishlaribayon etilib, kelgusida ularni isloh qilish va xususiylashtirish yo‘nalishlari bo‘yicha takliflar shakllantirilgan.
This paper measures the degree to which disclosed annual financial information assimilates into stock prices through the financial production process (FPP). Since it is established that price anchors impact investor trading decisions, the effect of proximity to chosen price anchors and the historical high and low prices on FPP efficiency is analysed for 611 Indian firms across 11 industries. Results show that a significant number of stocks are FPP inefficient, and the FPP efficiency is mean-reverting. Further, FPP efficiencies depend on proximity to price anchors, implying that FPP efficiency is a proxy measure of behavioural bias in stock prices.
تهدف هذه الدراسة إلي مناقشة أهم النتائج التي توصلت إليها الدراسات التطبيقية و التي تضمنت تجارب بعض الدول في قارات العالم الست بعد انجاز برنامج الخصخصة, حيث تم إجراء مسح نقدي للدراسات التي اهتمت بدراسة تقييم الأداء المالي و غير المالي قبل و بعد الخصخصة. حيث تبين انه تم استخدام بعض المؤشرات المالية مثل الربحية، الرفع المالي، المصروفات الرأسمالية الاستثمارية في عملية تقييم الأداء المالي، في حين تم استخدام العمليات المتعلقة بالإنتاج، الكفاءة التشغيلية، العاملين، كمؤشرات لقياس الأداء غير المالي. معظم الدراسات التي درست التغير في الأداء بعد الخصخصة أكدت بأن الكفاءة التشغيلية، و الربحية، و المصروفات الرأسمالية الاستثمارية قد زادت، في المقابل كان هناك انخفاض في الرفع المالي. بالإضافة إلي ذلك لم تؤيد معظم الدراسات بأن هناك أثر سلبي للخصخصة علي مستويات العمالة. عموما يمكن القول بأن هناك تحسن مستمر في أداء الشركات إجمالا بعد الخصخصة و ذلك باستخدام البيانات المالية و غير المالية.
Cet article de recherche examine la relation entre la corruption, la privatisation, les coûts de sécurité et la performance des entreprises dans la région de l’Europe centrale, orientale et sud-orientale (CESEE). En utilisant des données de panel au niveau des entreprises issues de l’enquête sur l’environnement des affaires et la performance des entreprises (BEEPS) couvrant 19 économies en transition sur la période 2002-2019, cette étude analyse l’impact de la corruption sur la performance des entreprises en contrôlant les caractéristiques des entreprises et des pays. Les résultats révèlent une association négative entre la corruption et la performance des entreprises, indiquant que la corruption constitue un obstacle significatif à la croissance et à la rentabilité des entreprises. Les résultats montrent également que les entreprises étrangères et celles issues d’entreprises publiques affichent une meilleure performance économique par rapport aux entreprises nationales et non-privatisées. De plus, il existe une relation positive entre les coûts de sécurité payés par les entreprises et leur performance économique, suggérant que l’investissement dans des mesures de sécurité peut atténuer l’impact négatif de la corruption sur la performance commerciale. Ces résultats soulignent l’importance de lutter contre la corruption, de promouvoir des conditions équitables pour tous les types d’entreprises et de créer un environnement commercial transparent et sûr. Les décideurs politiques doivent se concentrer sur des mesures anti-corruption efficaces, sur l’application des lois et sur le développement d’institutions favorisant la transparence et la responsabilité. Ces efforts peuvent conduire à une amélioration de la performance des entreprises, à une croissance économique, à une réduction des inégalités de revenus et à un meilleur bien-être social.
Broadening the organizational purpose of a firm beyond narrow short-term profit maximization may enhance long-term shareholder value. This result obtains when firms generate unpriced externalities and face difficulties in achieving ex ante incentive alignment with stakeholders through contract or have the ex post possibility of altering stakeholders’ perceptions through virtue signaling (i.e., cheap talk or greenwash). As each of these conditions is ubiquitous in practice, discussion of organizational purpose (beyond narrow short-term profit maximization to encompass stakeholder’s harmonious pursuit of a common higher goal or meaning) should shift from why management might pursue it to how managers obtain and maintain it as well as the value creation and distribution implications of doing so. Drawing on a value-based stakeholder theory of strategic management, I argue that attentiveness to the most salient issues of a firm’s most powerful stakeholders related to the attainment of this higher goal more closely aligns stakeholder and shareholder value in the long term, thereby building and sustaining relational contracts with stakeholders. A firm with strong relational contracts across its nexus of stakeholder relationships increases the likelihood of harmony among its stakeholders, including shareholders. An important challenge to realizing this outcome is that of measurement. As a result, research on organizational purpose should turn its attention from legal and moral foundations to empirical research on externalities, stakeholder opinions, and managers’ self-representations of their organization’s purpose. The availability of such data lowers the transaction costs associated with a nexus of relational contracts and enhances societal welfare.
History: This paper has been accepted for the Strategy Science Special Issue on Corporate Purpose.
L’article enquête sur la détermination des objectifs de l’introduction en bourse de l’Etat et de l’actionnaire privé, à travers le calcul de la sous-évaluation initiale pour deux cas réalisés sur le parquet de la bourse des valeurs mobilières de Tunis. La Sous Evaluation Initiale (SEI) est un moyen d’attraction des nouveaux investisseurs, en vue de la restructuration du haut du bilan d’une entreprise. Une plus-value réalisée attire les actionnaires à la participation à une augmentation du capital et la diminution du taux d’endettement, alors qu’une moins-value constatée suite à une surévaluation de l’action entrave la croissance de l’entreprise et démystifie l’image de marque de la société. Les objectifs de la cotation en bourse influent la fixation du cours d’introduction. En visant la transparence, la pérennité et l’image de la société. L’initiateur de l’opération fixe la juste valeur de l’entreprise et attire les potentialités financières. En visant la réalisation d’une importante plus-value, l’initiateur de l’offre publique de vente, risque de nuire à la croissance de la firme et échouer l’opération. Les résultats ont montré la divergence des objectifs de l’introduction en bourse. L’État cherche à dynamiser le marché financier, catalyser la finance directe, et appliquer la sous-évaluation initiale alors que le privé cherche à maximiser le produit de cession, réaliser la plus importante plus-value nette d’impôts, et appliquer une surévaluation initiale. This paper focuses on determining the objectives of the IPO of the State and the private shareholder through the calculation of the initial undervaluation for two cases carried out on the basis of the Tunis Stock Exchange. The Initial Under Valuation (IUV) is a means of attracting new investors, with a view to restructuring the top of a company's balance sheet. A realized capital gain attracts shareholders to participate in a capital increase and a reduction in the debt ratio, while a loss in value following an overvaluation of the action hinders the growth of the company and demystifies the brand image of the company. The objectives of the stock market listing influences the setting of the IPO price. By aiming for transparency, sustainability, and the image of the company, the initiator of the operation fixes the fair value of the company and attracts financial potential. By targeting the realization of a significant capital gain, the initiator of the public offer of sale puts the growth of the firm at risk, thus failing the operation. The results showed the divergence of IPO goals. The State seeks to energize the financial market, catalyze direct finance, and apply the initial undervaluation, while the private sector seeks to maximize the sale proceeds, achieve the largest net capital gain of taxes, and apply an initial overvaluation.
L’article enquête sur la détermination des objectifs de l’introduction en bourse de l’Etat et de l’actionnaire privé, à travers le calcul de la sous évaluation initiale pour deux cas réalisés sur le parquet de la bourse des valeurs mobilières de Tunis. La Sous Evaluation Initiale (SEI) est un moyen d’attraction des nouveaux investisseurs, en vue de la restructuration du haut du bilan d’une entreprise. Une plus-value réalisée attire les actionnaires à la participation à une augmentation du capital et la diminution du taux d’endettement, alors qu’une moins-value constatée suite à une surévaluation de l’action entrave la croissance de l’entreprise et démystifie l’image de marque de la société. Les objectifs de la cotation en bourse influent la fixation du cours d’introduction. En visant la transparence, la pérennité et l’image de la société. L’initiateur de l’opération fixe la juste valeur de l’entreprise et attire les potentialités financières. En visant la réalisation d’une importante plus value, l’initiateur de l’offre publique de vente, risque de nuire à la croissance de la firme et échouer l’opération. Les résultats ont montré la divergence des objectifs de l’introduction en bourse. L’Etat cherche à dynamiser le marché financier, catalyser la finance directe, et appliquer la sous évaluation initiale alors que le privé cherche à maximiser le produit de cession, réaliser la plus importante plus value nette d’impôts, et appliquer une surévaluation initiale.
L’article enquête sur la détermination des objectifs de l’introduction en bourse de l’Etat et de l’actionnaire privé, à travers le calcul de la sous évaluation initiale pour deux cas réalisés sur le parquet de la bourse des valeurs mobilières de Tunis. La Sous Evaluation Initiale (SEI) est un moyen d’attraction des nouveaux investisseurs, en vue de la restructuration du haut du bilan d’une entreprise. Une plus-value réalisée attire les actionnaires à la participation à une augmentation du capital et la diminution du taux d’endettement, alors qu’une moins-value constatée suite à une surévaluation de l’action entrave la croissance de l’entreprise et démystifie l’image de marque de la société. Les objectifs de la cotation en bourse influent la fixation du cours d’introduction. En visant la transparence, la pérennité et l’image de la société. L’initiateur de l’opération fixe la juste valeur de l’entreprise et attire les potentialités financières. En visant la réalisation d’une importante plus value, l’initiateur de l’offre publique de vente, risque de nuire à la croissance de la firme et échouer l’opération. Les résultats ont montré la divergence des objectifs de l’introduction en bourse. L’Etat cherche à dynamiser le marché financier, catalyser la finance directe, et appliquer la sous évaluation initiale alors que le privé cherche à maximiser le produit de cession, réaliser la plus importante plus value nette d’impôts, et appliquer une surévaluation initiale.
National Oil Companies (NOCs) play an important role in the world economy. They produce most of the world's oil and bankroll governments across the globe. Although NOCs superficially resemble private-sector companies, they often behave in very different ways. Oil and Governance explains the variation in performance and strategy for NOCs and provides fresh insights into the future of the oil industry as well as the politics of the oil-rich countries where NOCs dominate. It comprises fifteen case studies, each following a common research design, of NOCs based in the Middle East, Africa, Asia, Latin America and Europe. The book also includes cross-cutting pieces on the industrial structure of the oil industry and the politics and administration of NOCs. This book is the largest and most systematic analysis of NOCs to date and is suitable for audiences from industry and academia, as well as policy makers.
The chapter is a narrative review of the empirical studies conducted on Indian PSE's post disinvestment. Eighteen papers were selected through a process of search and exclusion to meet the criteria specified and results synthesized under four inductively derived themes. The review shows wide variability in performance outcomes of PSE's post disinvestment. The Indian Government has not followed a transparent process or framed a policy for disinvestment, which would gain public confidence. The process of disinvestment is driven by political expediency. Future research directions are proposed.
We examined the effectiveness of pay for individual performance (PFIP) in companies operating in multiple cultures. With the use of data from 308 multinational enterprises (MNEs) collected by IBM's WorkTrends™ project, we tested hypotheses regarding the moderating influence of the nine dimensions of the GLOBE country culture model on the relationship between PFIP and changes in financial performance over time. Multiple employees per firm (mean N = 24.7 employees) reported the extent there was a PFIP climate (PFIPc) in their firm. We matched these data at the firm level to changes in net income per employee over 4 years from the Wharton Research Data Service (WRDS). Consistent with predictions developed from contingency and cross‐cultural theories, after including relevant controls, we found the positive relationship between PFIPc and subsequent MNE performance is greater in cultures higher in future orientation, institutional collectivism and uncertainty avoidance and also lower in in‐group collectivism, power distance and humane orientation.
Purpose: In accordance with the Washington Consensus, most
developing countries were forced to privatize state-owned
enterprises (SOEs). Corporatization and partial privatization
emerged as two alternative possibilities for any government in
circumstances where full privatization was not practicable.
Pakistan followed suit and began the partial privatization and
corporatization of SOEs working in its economy. This research
examines whether Pakistan's corporatization or partial
privatization policies have improved the profitability of these
state-owned enterprises.
Design/Methodology/Approach: If so, what variables
contributed to this improvement in profitability, as measured by
Return on Assets and Earnings per Share. The paper used data
from 1990 to 2015 of thirteen SOEs, largely from the energy
sector, that have been corporatized by partial privatization
through stock market or other mechanisms.
Findings: Results exhibit that the primary criteria strongly
related with increased performance of corporatized SOEs,
according to our findings, are the appointment of non-government directors by companies and persistently positive
Gross Domestic Product of the economy. On the other hand, debt
commitments, ownership, and size of an SOE are all weak or
insignificant variables in determining whether an SOE should be
corporatized.
Implications/Originality/Value: Due to their strategic
significance, the energy industry should continue to be governed
and regulated by the government, but with a greater percentage of
non-nominated members on their boards of directors to maintain
corporate governance.
This paper investigated the critical factors in the implementation of privatization using the qualitative method. The utilities sector of Abu Dhabi, with its long experience in privatization, served as the research context. The participants were selected using purposive sampling and their key insights were drawn out using the semi-structured interview. The findings showed that the unique experience of privatization in the utilities sector was largely inspired by the strong vision of the leader. This was backstopped by a number of factors that were critical to its implementation to generate, a mix of sector-level, community-level, and country-level benefits.
Abstract
This paper investigated the critical factors in the implementation of privatization using the qualitative method.
The utilities sector of Abu Dhabi, with its long experience in privatization, served as the research context. The
participants were selected using purposive sampling and their key insights were drawn out using the semi-
structured interview. The findings showed that the unique experience of privatization in the utilities sector was
largely inspired by the strong vision of the leader. This was backstopped by a number of factors that were critical
to its implementation to generate, a mix of sector-level, community-level, and country-level benefits.
Keywords: privatization, utilities, single buyer, water-electricity nexus
This study examines the impact of social trust, the state ownership and their joint effects on investment efficiency in China using 6,885 firm-year observations from 2010 to 2018. We find that higher social trust is associated with higher investment efficiency, and the state ownership leads to lower investment efficiency. The SOEs exhibit higher under and over-investment problems relative to non-SOEs. The lower investment efficiency of SOEs is further amplified in provinces with higher social trust. These findings are consistent with agency and information asymmetry explanations, and robust to endogeneity and alternative measurement of variables.
We investigate long-run firm-level productive growth and technological changes and relate these to the formal and informal institutions and related factors. We conclude that persistency of easing of regulations through broader reforms, including privatization and perception of non-reversal of reforms, helped firms achieve prolonged productivity gains—led by technological changes alongside a socially desirable reduction in CO2 emissions due to energy saving, as well as increased labour usage, despite variations in the quality of formal and informal institutions. Broadly, both formal and informal institutions matter for all firms irrespective of productivity levels and technological gains. Government stability, the country's investment climate, socio-economic conditions, and corruption perception are essential in determining long-run productivity growth and technological changes. However, the role of law and order conditions, political constraints, and competitiveness of the political system/process in determining productivity gains and technological improvements varies by firms’ characteristics.
This paper sheds some light about privatisation in utilities. An empirical analysis based on sales in the electricity sector in 38 countries for the period 1977-97 shows that regulation is a crucial institutional variable in privati-sation. Not only it allows governments to increase the pace of divestiture and to sell higher stakes, but also to maximise proceeds reducing regula-tory risk. The revenues-efficiency trade-off loses some relevance in electricity privatisation.
Critics of privatization argue that the increased profitability of privatized companies comes at the expense of society. Using
data from 97 percent of those nonfinancial firms privatized in Mexico during the period 1983–1991, we study two channels for
social losses: (1) increased prices, and (2) layoffs and lower wages. Privatization is followed by a 24-percentage-point increase
in the mean ratio of operating income to sales as firms catch up with industry-matched control groups. We estimate that higher
product prices explain 5 percent of that increase; transfers from laid-off workers, 31 percent; and productivity gains, the
remainder.
We examine the links between ownership and internal control for a sample of 112 state-owned, privatized, and publicly traded firms in the United Kingdom from 1970 to 1994. Privatized firms with at least four years in the private sector, like established publicly traded firms, exhibit a significant negative relationship between improved performance and the probability of resignation. Simulations using model estimates show a one-standard-deviation decrease in performance raises the probability of resignation by 90% in publicly traded firms and by 180% in established privatized firms. State-owned firms and privatized firms in their first four years show no relationship between the probability of resignation and changes in financial performance.
Recent studies argue that the spread-adjusted Taylor rule (STR), which includes a response to the credit spread, replicates monetary policy in the United State. We show (1) STR is a theoretically optimal monetary policy under heterogeneous loan interest rate contracts in both discretionay and commitment monetary policies, (2) however, the optimal response to the credit spread is ambiguous given the financial market structure in theoretically derived STR, and (3) there, a commitment policy is effective in narrowing the credit spread when the central bank hits the zero lower bound constraint of the policy rate.
Privatization of state-owned assets was a central economic reform of the 1980s and 1990s. Lack of data has made it impossible
to judge the extent to which privatization has diminished the importance of state ownership in the economy or changed the
performance of state-owned enterprises. This article introduces a new data base on state-owned enterprises, the first since
the mid-1980s, which partly fills this information gap. The Bureaucrats in Business data base provides time-series data for
up to 88 countries on the share of state enterprises in the overall economy, investment, employment, and internal and external
credit as well as their overall surplus or deficit and the size of transfers to and from national treasuries. The article
presents the rationale for the data base, describes its seven measures of state enterprise size and performance, and explores
possible uses of the information.
This article examines whether privatization affects management incentives and provides an estimate of the magnitude of the change. Using data from large firms in the United Kingdom, we find no relationship between compensation and financial performance in state-owned firms, both before and after corporate governance reforms. In contrast, we find a strong sensitivity in privatized firms both immediately and in more mature privatized firms driven largely by stock options and shareholding. For more mature privatized firms, compensation and dismissal sensitivities are complementary with our estimates, suggesting a 443,000 pound increase in management returns for a one standard deviation improvement in firm performance. This estimated incentive intensity is higher than in established publicly traded firms. Our results support the theoretical focus on incentives in the dominant theories of state and private ownership. Copyright 2003, Oxford University Press.
Despite being one of the most fundamental issues in political economy, the question of the appropriate boundary between public and private enterprise received relatively little attention in mainstream economic analysis until quite recently. In the 1980s, however, programs of ownership reform were started in many developed and developing countries. Dramatic though some of these policies have been, they are likely to be overshadowed in the 1990s by even greater privatization in the reforming socialist economies. The opening sections of this paper are organized around three broad and interrelated questions. How does ownership matter for the efficiency of enterprise performance? What is the role for privatization in financing public debts and deficits? What are the distributional and political implications of privatization? Finally we examine privatization in practice in three countries: Britain, Chile, and Poland.
Private ownership and competition are considered powerful instruments to achieve efficiency in individual firms and whole economies. Based on this conviction, many governments have pursued privatisation and deregulation programs in recent years. In this context, privatisation means that state-owned firms are sold completely or partially to private investors, turning over control from politicians to private managers and shareholders. Deregulation is defined as a reduction of government interference with market processes, allowing more competition. In the telecommunications industry it typically implies that private firms get access to markets that were previously characterised by a government monopoly.
In the last decade, large-scale privatization programs have transformed the structure of corporate ownership in many countries, and are a major cause of the development of their capital markets. They have contributed to nondebt financing of the public deficit, attracted foreign capital and technology, and promoted the return of flight capital. Finally, the large task of privatization of state-owned enterprises in Eastern Europe has proven to be one of the most difficult in the transition to a market economy. This paper examines the history of large-scale privatization plans in several countries, and offers some revealing insight on the strategy used by governments to achieve large sales on the capital markets. Our results are relevant for investment bankers involved in advising governments on privatization sales, for institutions interested in assessing the risk of portfolio investment in emerging economies, and for potential joint-venture investors in former state-owned enterprises. We document remarkable similarities across different sale programs. Firms are typically sold gradually, even when control is transferred rapidly. Sales of utilities tend to be more gradual than for manufacturing firms in competitive markets. The form of the sale is usually a fixed-price offer, which is often heavily underpriced. We compare a popular interpretation of gradual sales, namely limited market capacity, with a confidence-building rationale. Partial sales are usually seen as a necessity dictated by the size of privatization programs relative to the existing public equity market. The argument is that rapid sales may swamp the market and depress sale prices. However, capital markets are by definition forward-looking; thus, their current size is a misleading indicator of their potential capacity, particularly as privatization tends to take place alongside a general reform process which emphasizes markets and restores confidence in the domestic economy. However, a reform process may be subsequently reversed under pressure by entrenched interest groups; thus investment in a privatized firm is exposed to the fisk of future adverse policy changes. A privatizing government must therefore overcome investors' diffidence about its regulatory and trade policy after the sale. In order to maximize proceeds, a government may retain a stake in the firm for some time (provided managerial control is transferred immediately). This willingness to bear part of the Policy fisk will lead to higher confidence and sale prices. The progress of sales may accelerate overtime as the policy credibility of reform becomes established. Similarly, early sales may be deliberately underpriced in order to convince the market to absorb larger sales. Although the two explanations have similar empirical implications, we identify several features of sale programs which appear to be consistent with the reputation-building hypothesis rather than with the notion of temporary market capacity constraints. The risk of adverse policy changes is likely to be particularly serious for firms with large fixed investment programs which operate as natural monopolies, such as utilities, or for protected manufacturers. The evidence indicates that sales of such policy-sensitive firms tend to be more gradual and exhibit larger underpricing. In the literature on initial public offerings (IPOs), a very gradual sale structure with large underpricing is optimal when the seller has superior information over the value of the firm. However, a government is not likely to know more than private investors about asset values. Moreover, most of these firms are large, well-known utilities with stable profitability and limited competition. We conclude that the main source of uncertainty in these cases concerns future regulatory policy. In contrast, complete sales are usually associated with manufacturing firms in competitive markets. Moreover, underpricing is, on average, greater in privatization sales (and particularly so for oligopolistic firms) than in the sale of private firms. The market capacity view does not distinguish between a sequence of complete sales and a program of staggered partial sales of comparable size. The evidence suggests that governments prefer to sell stakes in several firms simultaneously as opposed to sequencing complete sales, presumably building credibility over different industries at the same time. Moreover, a common feature of all programs is that the time profile of privatization proceeds tend to increase rapidly. This is inconsistent with a fixed capacity constraint, but can be rationalized as indicating a gradual buildup in investors' confidence. Finally, the fact that larger initial sales become more common over time suggests that as confidence increases, more rapid sales become feasible. Our conclusion is that the data gathered provide evidence in favor of the confidence-building hypothesis. It is consistent both with the traditional interpretations of the structure of initial public offerings of private firms and with the specific risks associated with privatization sales.
Several Eastern European countries have initiated mass privatization programs to transfer state-owned assets to the general population. We show that the decision to pursue mass privatization and even the specific design of the programs are largely dictated by politics. Nonetheless, politically feasible programs can also be made attractive from an economic standpoint in terms of maximizing value, fostering free and efficient markets, and promoting corporate governance. In general, the design of economic institutions is critically shaped by political factors, although satisfactory economic results can be achieved in spite of political constraints.
Since 1979, many state-owned industries in the UK have been sold to private shareholders. Initial studies of the impact of privatization on performance were unable to distinguish once-and-for-all shake-out effects and those that were part of a continuing process. Moreover, the immediate post-privatization period often coincided with the boom conditions of the late 1980s. Using two standard performance ratios, this paper examines these issues by tracking the record of eleven firms that were privatized in the 1980s. The results make it difficult to sustain the hypothesis that private ownership is unequivocally more efficient than nationalization.
The German government rapidly privatized state owned enterprises thorough an auction mechanism with openness to all purchasers. Western German firms purchased most enterprises raising suggestions of inefficiency or corruption. This paper rationalizes the government approach, suggesting the key to understanding these elements of the economic transition is recognition of the need to select western management and transfer them to eastern enterprises. I demonstrate the importance of management selection through a model of adverse selection based on information advantages for private owners. Privatization can improve the quality and level of management in eastern enterprises, and these benefits can increase with the size of the transition. Evidence from East Germany supports the theoretical assumptions and is consistent with model predictions.
This study examines how political and economic factors affect the offer price, share allocation, and other terms governments choose when they privatize state-owned enterprises via a public share offering. Using a 59 country sample of 630 share issue privatizations (SIPs) with total proceeds of over $446 billion during the period 1977–1997, we find that governments consistently underprice SIP offers, tilt their share allocation patterns to favour domestic investors, impose control restrictions on privatized firms, and typically use fixed-price offers rather than book building or competitive tender offers, all to further political and economic policy objectives.
The number of privatization transactions occurring in the world continues to grow apace. Predictions are that over $6 trillion in privatization assets will be sold over the next 20 years.1 And while the academic debate continues, practitioners continue to garner lessons on how to overcome both technical and political obstacles to implementing privatization transactions. The emerging lessons indicate that it is possible to achieve considerable efficiency and welfare gains from privatization. The real challenges are in finding creative mechanisms for overcoming the political impediments to privatization. The author analyzes the shift in focus from whether efficiency gains are possible with privatization to how to distribute the benefits. Recent innovations to address political constraints are analyzed, such as the greater use of markets to assess the value of firms, the use of giveaways to garner political support, and the array of instruments available to appease nationalistic fears of foreign takeover.
The analysis of the privatization of state-owned enterprises in sub-Saharan Africa (SSA) has been based on very incomplete and out of date data. This paper presents and discusses the preliminary results of a comprehensive survey of privatization transactions in SSA up until the end of 1995. While previous research has concluded that the privatization process has made only very limited process since the early-mid 1980s, the survey reveals 1.(a) a generally much higher level of privatization activity than that indicated by existing data sources;2.(b) a very considerable range of country experiences with privatization; and3.(c) a marked increase in the number and overall value of privatization transactions since the early 1990s.
While serious economic and political constraints continue to hamper the implementation of privatization programs in SSA, there is a strong likelihood that the intensity of the privatization effort will continue to accelerate during the next 5–10 years.
Just how far can privatization be pushed, and with what consequences? Based on a study of Argentine railroads, this paper concludes that even large, unprofitable firms in developing countries faced with market failures can be privatized, but the gains from doing so depend on how badly the state enterprise was performing to begin with, and the potential for introducing competition in the market and for the market. The broader lesson is that when both market failures and government failures are present, a public-private solution is preferable to a purely private or a purely public solution. Privatization is not a panacea but potentially a palliative, when it comes to reducing subsidies or coping with regulatory failures.
We analyze the effect of privatization on the performance of British Airways by examining the privatization's impact on airfares and competitors' stock prices. We find that stock prices of U.S. competitors fell a significant 7% upon British Airways' privatization, implying expectation of a more competitive British Airways. Closer rivals of British Airways experienced a greater drop in stock price than more distant rivals. Further, airfares in markets served by British Airways fell significantly upon privatization. The results suggest that a change from government to private ownership improves economic efficiency.
"Does Privatization Serve the Public Interest?" ask John B. Goodman and Gary W. Loveman. Supporters of privatization claim that it will bring more efficiency and better quality. Critics, however, argue that other values--the broader public interest--must be accounted for. The authors draw a valuable lesson from the debate over corporate takeovers: the form of ownership is less important than the establishment of managerial accountability.
This study surveys the academic literature examining the privatization of state-owned enterprises (SOEs), with a focus on 70 empirical studies. The paper is written from the perspective of a policy-maker weighing the adoption of a national privatization program, who seeks answers to the following questions: (1) How large an impact have privatization programs actually had on state involvement in different national economies?; (2) What are the principal reasons for divestment?; (3) Have privatization programs significantly improved the operating and financial performance of the companies divested, and has this effect been different in transition and non-transition economies?; (4) What factors impact how governments select the appropriate method of selling state assets?; (5) How do governments price the SOEs they wish to sell and what buyers do they favor?; (6) Have investors who purchase the shares of privatized firms experienced positive short and long-term returns?; (7) What impact have share issue privatization programs had on the development of nation stock markets?; and (8) What role have privatization programs played in helping countries develop effective corporate governance systems? Privatization programs have reduced the average worldwide level of state ownership by roughly one-half (to less than six percent) over the past two decades, with the SOE share of national output falling especially rapidly in developing countries during the 1990s. Nations adopting large-scale privatization programs have done so for three principal reasons. First, the evidence now strongly suggests that privately-owned firms outperform SOEs and empirical studies show that privatization significantly (often dramatically) improves the operating and financial performance of most divested firms in both transition and non-transition economies. Second, governments have raised significant revenues through the sale of SOEs, with the cumulative value of such sales reaching $1 trillion
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.
The authors use a survey of 452 Russian shops, most of which were privatized between 1992 and 1993, to measure the importance of alternative channels through which privatization promotes restructuring. Restructuring is measured as major renovation, a change in suppliers, an increase in the hours stores stay open, and layoffs. There is strong evidence that the presence of new owners and new managers raises the likelihood of restructuring. In contrast, there is no evidence that equity incentives of old managers promote restructuring. The evidence points to the critical role new human capital plays in economic transformation. Copyright 1996 by University of Chicago Press.
This paper compares the performance of privatized and state firms in the transition economies of Central Europe, while controlling
for various forms of selection bias. It argues that privatization has different effects depending on the types of owners to
whom it gives control. In particular, privatization to outsider, but not insider, owners has significant performance effects.
Where privatization is effective, the effect on revenue performance is very pronounced, but there is no comparable effect
on cost reduction. Overlooking the strong revenue effect of privatization to outsider owners leads to a substantial overstatement
of potential employment losses from postprivatization restructuring.
This article examines the experience in the United Kingdom with the regulation of privatized monopolies. Its conclusions are (1) that there are significant differences between RPI - X (or price-cap) and U.S. rate-of-return regulation, which provides greater scope for bargaining in the former system; (2) that U.K. regulators have taken seriously their duty to promote competition, but that the existing economic literature is of limited help in this task; (3) that price regulation is likely to be more effective where technology is changing slowly and/or where technology is changing rapidly; and (4) that the case for RPI - X price-cap, rather than rate-of-return regulation, is strongest in telecommunications, gas supply, and electricity supply and least strong in gas and electricity transmission grids.
The authors develop and apply a schema to evaluate outcomes of privatiztion. The schema is applied to evaluative research conducted on privatizations in France, the United Kingdom, Australia, and New Zealand. The findings indicate that comprehensive evaluations of privatization outcomes are wanting.
Criticisms of privatization have centered around the possibility that the observed higher profitability of privatized companies comes at the expense of the rest of society. In this paper we focus on two of the most likely channels for social losses: (1) increased prices as firms capitalize on the market power; and (2) layoffs and lower wages as firms seek to roll back generous labor contracts. Using data for all 218 non-financial privatizations that took place in Mexico between 1983 and 1991 we find that privatized firms quickly bridge the pre-privatization performance gap with industry-matched control groups. For example, privatization is followed by a 24 percentage point increase in the ratio of operating income to sales. We roughly decompose those gains in profitability as follows: 10 percent of the increase is due to higher product prices; 33 percent of the increase represents a transfer from laid-off workers; and productivity gains account for the residual 57 percent. Transfers from society to the firm are partially offset by taxes which absorb slightly over half the gains in operating income. Finally, we also find evidence indicating that deregulation is associated with faster convergence to industry benchmarks.
This paper examines the change in the financial and operating performance of 79 companies from 21 developing countries that experienced full or partial privatization during the period from 1980 to 1992. We use accounting performance measures adjusted for market effects in addition to unadjusted accounting performance measures. Both unadjusted and market-adjusted results show significant increases in profitability, operating efficiency, capital investment spending, output, employment level, and dividends. We also find a decline in leverage following privatization but this change is significant only for unadjusted leverage ratios. Our results are generally robust when we partition our data into various subsamples.
We examine the long-run returns earned by domestic, international, and US investors who purchase shares at the first open-market price in 158 share issue privatizations (SIPs) from 33 countries during the period 1981-1997. We compute one-, three-, and five-year net returns for domestic, international, and US market indexes, and industry-matched comparison samples. We find statistically significant positive net returns for the 158 unseasoned SIPs for all holding periods and compared with all benchmarks. Our findings contrast with the patterns reported in previous research for equity offerings of private firms in the US and other countries.
This study compares the pre- and postprivatization financial and operating performance of sixty-one companies from eighteen countries and thirty-two industries that experience full or partial privatization through public share offerings during the period 1961 to 1990. The authors' 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, the authors document significant changes in the size and composition of corporate boards of directors after privatization. Copyright 1994 by American Finance Association.
Recent studies argue that the spread-adjusted Taylor rule (STR), which includes a response to the credit spread, replicates monetary policy in the United State. We show (1) STR is a theoretically optimal monetary policy under heterogeneous loan interest rate contracts in both discretionay and commitment monetary policies, (2) however, the optimal response to the credit spread is ambiguous given the financial market structure in theoretically derived STR, and (3) there, a commitment policy is effective in narrowing the credit spread when the central bank hits the zero lower bound constraint of the policy rate.
There is little evidence on unemployment duration and its determinants in developing countries. This study is on the duration aspect of unemployment in a developing country, Turkey. We analyze the determinants of the probability of leaving unemployment for employment or the hazard rate. The effects of the personal and household characteristics and the local labor market conditions are examined. The analyses are carried out for men and women separately. The results indicate that the nature of unemployment in Turkey exhibits similarities to the unemployment in both the developed and the developing countries.
Privatization shifts residual income and control to private investors, restricting redistribution and improving incentives; thus rapid privatization should be desirable. Empirically, however, the transfer of ownership, as opposed to control, is very gradual. The author offers an explanation based on investors' concerns about future interference. A government averse to redistribution retains a passive stake in the firm; the willingness to bear residual risk signals commitment. When a large government stake conflicts with the transfer of control, underpricing may be necessary for separation. Finally, when the required discount is large, a committed government may prefer not to signal, gaining credibility over time. Copyright 1995 by American Economic Association.
Public enterprises around the world have proved to be highly inefficient, primarily because they pursue strategies, such as excess employment, that satisfy the political objectives of politicians who control them. Privatization of public enterprises can raise the cost to politicians of influencing them, since subsidies to private firms necessary to force them to remain inefficient are politically harder to sustain than wasted profits of the state firms. In this way, privatization leads to efficient restructuring of firms. Moreover, privatization is more effective when combined with a tight monetary policy and when the new owners of firms are profit maximizing investors, rather than their employees or even managers. Copyright 1996 by Royal Economic Society.
The authors report a social cost-benefit analysis of the privatization and restructuring of the Central Electricity Generating Board which generated and transmitted all public electricity in England and Wales until 1990. The main benefits came from generator efficiency gains, switching from nuclear power, and lower emissions. The main costs came from higher prices for imported French electricity, the cost of restructuring, and premature investment in new gas-fired generating plants. The authors' central estimate is a permanent cost reduction of 5 percent per year, equivalent to an extra 40 percent return on assets. Consumers and government lose, and producers gain more than the cost reduction. Copyright 1997 by Blackwell Publishing Ltd
This paper examines the change in the financial and operating performance of 79 companies from 21 developing countries that experienced full or partial privatization during the period from 1980 to 1992. We use accounting performance measures adjusted for market effects in addition to unadjusted accounting performance measures. Both unadjusted and market-adjusted results show significant increases in profitability, operating efficiency, capital investment spending, output, employment level, and dividends. We also find a decline in leverage following privatization but this change is significant only for unadjusted leverage ratios. Our results are generally robust when we partition our data into various subsamples. Copyright The American Finance Association 1998.
This paper suggests that management's role in enterprise restructuring and market failures in the managerial labor market help explain important features of the German privatization program. A model of adverse selection based on information advantages for private owners demonstrates how privatization can improve the quality and number of western managers in eastern enterprises. These benefits can increase with the size of the transition. Evidence of management replacement and significant differences between state-owned and privatized firms from a survey of eastern German firms supports model assumptions and predictions. These results suggest the importance of management replacement to successful privatization. Copyright 1997 by American Economic Association.
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