The Financial and Operating Performance of Privatized Firms during the 1990s

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. DURING THE PAST TWO DECADES, the privatization of state-owned enterprises has moved from being a radical, almost desperate, policy initiative of the Thatcher government in Britain to being an accepted economic policy for governments of all ideological stripes. According to Gibbon~1998!, $860 billion has been raised by governments worldwide through privatizations, with the bulk of this total coming since 1987, and at least one commentator~Rochẽ 1996!! predicts that no less than $6 trillion will be raised through privatizations over the next two decades. In 1997 alone, sales of public enterprises totaled a record $161 billion worldwide, with more than $110 billion of the total coming during the second half of the year, and 1998's total of almost $140 billion indicates that the pace shows no sign of slackening as we approach a new millennium.

Performance Consequences of Privatizing Egyptian State-Owned Enterprises: The Effect of Post-Privatization Ownership Structure on Firm Performance

“…In this context, Galal, Jones, Tandon, and Vogelsang (1992) document net welfare gains in 11 out of 12 privatized firms located in developing and developed economies. In larger scale and more comprehensive studies, Megginson, Nash, and Randenborgh (1994), Boubakri andCosset (1998), andD'Souza andMegginson (1999) find significant improvements in profitability, operating efficiency, capital investment spending, output, employment levels, and dividends, while they observe a decline in leverage.…”

Acting Right? Privatization, Encompassing Interests, and the Left

“…Empirical support for this general claim has been provided by a number of studies (e.g. Boardman and Vining 1989;D'Souza and Megginson 1999;Ehrlich et al 1994;Vining and Boardman 1992). Dewenter and Malatesta (2001) partially questioned this reasoning by showing that corporate performance gains appear to have been realized in the years before the actual privatization occurred.…”

Why do Chinese local governments transfer their rights of control over SOEs to the central government?

“…Since 1980, many countries, and not only the ex-communist economies but also developed economies such as the UK, have substantially reformed their state-owned enterprises (hereafter SOEs) (D'Souza and Megginson, 1999;Megginson and Netter, 2001). As the largest transitional economy in the world, China launched its SOE reforms in 1979.…”