Disinvestment in Indian central public sector enterprises: a performance improvement measure

Abstract

PurposeThe 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/approachThrough 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.FindingsThe 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/valueThe 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.

Analyzing the stock market performance of central public sector enterprises disinvested through public offering mode: Indian evidence

“…Theoretically, this paper responds to the gaps concerning financial performance analysis of Disinvested Central Public Sector Enterprises in India. Mandiratta and Bhalla (2021) stated that most of the privatization-related studies in Indian context are found to be of conceptual nature and the majority portion is restricted to the examination of traditional accounting measures only. As such, the studies measuring the impact of disinvestment on the financial and operating performance of CPSEs divested through public offering mode are at best scarce or absent.…”

“…Also, one of the well-known facts about privatization policy, as far as its motive is concerned, has been to improve the functioning of sick and loss making public sector units. As such, privatization has proved to be an effective strategy of the government as well as a performance improvement measure (Mandiratta and Bhalla, 2021) similar to benchmarking. Therefore, this study is a great contribution to benchmarking directly in terms of performance measurement through standards and indirectly through the mechanism of privatization.…”