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Abstract:
During the second half of 1999, the cumulative value of privatization sales proceeds received by governments around the world topped $1 trillion. While it has thus significantly reduced the global fiscal burden, and has significantly altered the world's economic landscape, privatization has also raised important questions. While there is now ample empirical evidence that privatization improves the performance of divested firms, to date there has been very little study of why these performance improvements occur. We use a sample of 119 firms (from 29 countries and 28 industries), privatized via public share offering between 1961 and 1995, to address this important issue. We first contribute to the existing empirical literature by documenting significant increases in profitability, efficiency, output, and capital expenditures, and significant decreases in leverage following privatization. Unlike any other large-sample empirical study of share-issue privatization, we then study the determinants of these performance improvements using six proxies for performance changes.

Prior to privatization, governments may choose to restructure firms through ownership changes (i.e., establish relation with strategic foreign investors, implement employee share ownership plan) and/or acquisitions and divestitures and/or financial restructuring (i.e., debt write-offs). Our results confirm that both restructuring and changes in corporate governance are important determinants of post-privatization performance. Therefore, our data identify both "micro" and "macro" sources of post-privatization performance improvement.

Following privatization, firms significantly increase profitability, output per employee, and real sales. These results add to the growing empirical evidence that, following privatization firms become more profitable and efficient. Our data provide evidence of stronger profitability gains for firms with lower employee ownership and higher state ownership, stronger output gains for firms in competitive industries and for firms in countries with growing economies. Stronger efficiency gains are observed when foreign ownership is high, for firms that restructured, for firms in developing nations and when the share offer size is relatively small compared to total national market capitalization. We find that higher levels of employee ownership are associated with greater increases in capital expenditure after privatization. Finally, our results indicate that leverage increases more for firms with higher foreign ownership, those located in developing economies and those in countries with rapidly growing economies.

Abstract:
This paper examines the financial and operating performance of 31 national telecommunication companies in 25 countries that were fully or partially privatised through public share offering between October 1981 and November 1998. Using conventional pre- versus post-privatisation comparisons, we find that profitability, output, operating efficiency and capital investment spending increase significantly after privatisation, while employment and leverage decline significantly. However, these univariate comparisons do not account for separate regulatory and ownership effects (retained government stake), and almost all telecoms are subjected to material new regulatory regimes around the time they are privatised. We examine these separate effects using both random and fixed-effect panel data estimation techniques for a seven-year period around privatisation. We verify that privatisation is significantly related to higher profitability, output and efficiency, and with significant declines in leverage. However, we also find numerous separable effects for variables measuring regulation, competition, retained government ownership and foreign listing (on U.S. and U.K. exchanges). Competition significantly reduces profitability, employment and, surprisingly, efficiency after privatisation, while creation of an independent regulatory agency significantly increases output. Mandating third party access to an incumbent - network is associated with a significant decrease in the incumbent - investment and an increase in employment. Retained government ownership is associated with a significant increase in leverage and a significant decrease in employment, while price regulation significantly increases profitability. Major efficiency gains result from better incentives and productivity, rather than from wholesale firing of employees and profitability increases appear to be caused by significant reductions in costs - rather than price increases. On balance, we conclude that the financial and operating performance of telecommunications companies improves significantly after privatisation, but that a sizeable fraction of the observed improvement results from regulatory changes - alone or in combination with ownership changes - rather than from privatisation alone.

Privatisation, regulation, corporate governance, telecommunications

Abstract:
This study adds to the empirical evidence that privatization improves the performance of divested firms and offers preliminary evidence as to why these performance improvements occur. Using a sample of 129 share-issue privatizations from 23 developed (OECD) countries, we first document significant increases in profitability, efficiency, output, and capital expenditure following privatization. Our data indicate that ownership (both private and foreign), degree of economic freedom, and level of capital market development significantly affect post-privatization performance. A comparison to the findings of Boubakri, Cosset, and Guedmani (2004) suggests that several determinants of post-privatization performance improvements differ between developed and developing countries.

Privatization, corporate governance

Abstract:
Using a sample of 161 firms (privatized from 1961-1999), our study offers evidence regarding how restructurings and corporate governance changes affect the firm's post-privatization performance. Prior to privatization, governments may choose to restructure firms through governance changes (i.e., establish relation with strategic foreign investors, implement employee share ownership plans) and/or restructurings (i.e., acquisitions, divestitures, re-capitalizations). We first extend the existing privatization research by documenting and describing these restructurings. We then conduct preliminary tests to examine whether such restructurings/governance changes have contributed to improvements in post-privatization operating performance. Our results suggest that both restructuring and changes in corporate governance are important determinants of post-privatization performance. We feel that our multi-national, multi-industry sample provides a broad perspective of share-issue privatizations and offers opportunities to identify potential sources of efficiency improvements in newly privatized firms.

International financial markets, performance, privatization

Abstract:
This study examines the pre- and post-privatization financial and operating performance of 208 firms privatized in China during the period 1990-97. The full sample results show significant improvements in real output, real assets, and sales efficiency, and significant declines in leverage following privatization, but no significant change in profitability. Further analysis shows that privatized firms experience significant improvements in profitability compared to fully state-owned enterprises during the same period. Firms in which more than 50 percent voting control is conveyed to private investors via privatization experience significantly greater improvements in profitability, employment, and sales efficiency compared to those that remain under the state's control. Privatization seems to work in China, especially the more private firms become.