Partial Privatization and Firm Performance: Evidence from India

31 Pages Posted: 21 Dec 2001

See all articles by Nandini Gupta

Nandini Gupta

Indiana University - Kelley School of Business - Department of Finance

Date Written: November 2001

Abstract

Privatization in India is mostly limited to the diffuse sale of minority stakes in firms. Since control rights have not been transferred to private owners it is widely contended that the process has had little impact on firm behavior. We find however that even the sale of minority stakes has a positive impact on firm performance and productivity. As the government remains the controlling owner in these firms, we infer that the improvement is attributable to the role of the stock market in monitoring managerial performance rather than to a change in owners' objectives. Consistent with this interpretation, we find that improvements in earnings are due to an increase in the productivity of labor rather than layoffs. Partial privatization continues to affect the sales and operating efficiency of firms when we control for competitive conditions, and the evidence also suggests that privatization and competition have a complementary impact on firm performance.

Keywords: Partial privatization; Corporate governance; Manager incentives; India

JEL Classification: L33, L52, G34, M40, M46

Suggested Citation

Gupta, Nandini, Partial Privatization and Firm Performance: Evidence from India (November 2001). Available at SSRN: https://ssrn.com/abstract=294560 or http://dx.doi.org/10.2139/ssrn.294560

Nandini Gupta (Contact Author)

Indiana University - Kelley School of Business - Department of Finance ( email )

1309 E. 10th St.
Bloomington, IN 47405
United States
812-855-3416 (Phone)
812-855-5875 (Fax)

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