Explaining Performance Changes in Newly Privatized Firms

Abstract

Much debate has been generated about whether privatization tends to enhance ®rm ®nancial performance. The research presented here seeks to identify the strategic choices that dierentiated ®rms with superior post-privatization performance from those with inferior post-privatization performance.Using agency theory as a theoretical foundation, it is hypothesized that superior post-privatization ®rm performance will be associated with (1) the government not retaining a signi®cant stock holding, (2) changes in leadership, (3) management stock options being initiated, (4) employee head count being reduced, and (5) the company being restructured ®nancially. The sample draws from 41 privatized ®rms from six industry classi®cations and 15 countries. To accommodate comparisons of small subsamples, non-parametric statistical methods are used. Controlling for size, industry and country (economic/regulatory eects), the hypotheses are generally supported except for the one relating to headcount.

Public sector reforms, privatisation and regimes of control in a Chinese enterprise

“…Also, Karatas' empirical study (1995) in Turkey found that privatisation does not have a significant effect on enterprise efficiency. Andrews and Dowling (1998) further argued that privatisation is associated with new forms and an increased prominence of financial reporting and control to reflect the new strategic orientation and organisational structures. Jones's study (1985) shed light on the role of management accounting systems (MAS) following a takeover or merger and drew the conclusion that accounting-type controls probably play a much more important role than is generally acknowledged.…”

Privatisation processes and firm performance : the Libyan industrial sector

“…To accommodate comparisons of small sub-samples, non-parametric statistical methods were used. Andrews and Dowling (1998) stated that controlling for size, industry and country (economic/regulatory effects), the hypotheses are generally supported except for one which related to headcount. They found that 18 of 41 firms retained strong state influence; 16 firms changed their CEOs; 13 firms reduced their employees by at lest 10 percent; 29 firms financially restructured; and 11 of 35 offered the management stock options.…”

“…The government of Kenya dismissed the entire board of directors, together with the chief executive, and appointed a new board by choosing the best and most able people in the country to manage the company (Debrah & Toroitich, 2005). Andrews and Dowling (1998) found a strong relation between performance improvements and management restructuring after privatisation. Management replacement is likely to be contingent on privatisation methods that determine who the new owners are and degree of political interference that remains after privatisation.…”

“…Most of the firms recorded increased productivity growth after privatisation, while the result was disappointing in some cases. Another study which concentrated on mixed privatisation results was carried out by Andrews and Dowling (1998). They identified strategic changes that differentiated firms that recorded superior post-privatisation performance improvement from firms that recorded inferior improvement or even performance deterioration.…”

“…In the early stage of privatisation, a considerable debate raged about whether privatisation leads to improved firm performance (Andrews & Dowling, 1998). In this context, numerous empirical studies focused on the ownership issue.…”