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Partial privatization and firm performance (2005)
| Venue: | Journal of Finance |
| Citations: | 103 - 1 self |
BibTeX
@ARTICLE{Gupta05partialprivatization,
author = {Nandini Gupta},
title = {Partial privatization and firm performance},
journal = {Journal of Finance},
year = {2005},
pages = {987--1015}
}
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Abstract
Most privatization programs begin with a period of partial privatization in which only non-controlling shares of firms are sold on the stock market. Since management control is not transferred to private owners it is widely contended that partial privatization has little impact. This perspective ignores the role that the stock market can play in monitoring and rewarding managerial performance even when the government remains the controlling owner. Using data on Indian state-owned enterprises we find that partial privatization has a positive impact on profitability, productivity, and investment. WIDESPREAD PRIVATIZATION IN RECENT DECADES has generated a large empirical literature concerning the effect of ownership on firm performance. Most studies find that privatization has a positive impact on the profitability and efficiency of firms (see Megginson and Netter (2001) for a recent survey). 1 The firms in these studies have had a majority of their assets privatized and control rights have been transferred from the government to private owners. Surprisingly, little is known about the effect of partial privatization where the government remains the controlling owner. This paper seeks to address this gap in the literature by investigating whether the performance of state-owned enterprises in India is affected by the sale of non-controlling equity stakes on the stock market. Understanding the impact of partial privatization is important because most privatization transactions of significant size are through partial sales of equity in the stock market. In a sample of share-issue privatizations from 59 countries, Jones et al. (1999) found that just 11.5 % of the firms sold all of their capital
Keyphrases
partial privatization stock market firm performance private owner positive impact large empirical literature significant size widespread privatization recent decade using data management control state-owned enterprise non-controlling share indian state-owned enterprise managerial performance non-controlling equity stake recent survey little impact partial sale privatization program share-issue privatization privatization transaction
