The operating and financial performance of privatized firms : an empirical investigation

• Main Author: Laurin, Claude
• Format: Others
• Language: English
• Published: 2009
• Online Access: http://hdl.handle.net/2429/6153

The purpose of this dissertation is to analyze the impact of privatization on a firm's operating and financial performance. In a first step, a theoretical discussion of the impact privatization can have on the effort provided by the manager operating the firm in the name of the owners is exposed. It is shown that shareholders acquiring a privatized State-Owned Enterprise can get an effort monitoring advantage over the government. If the government's objectives pursued through the ownership of a firm change from being socio-political to profit maximization, then this comparative monitoring advantage of shareholders explains the privatization decision. In the second part of the dissertation, several financial aspects of share issue privatization are analyzed. Models developed for the Initial Public Offering (IPO) market are re-assessed in light of privatization particularities. It is argued that capital market limitations rather than a desire to signal good future prospects explains the fraction of ownership retained by the government in a share issue privatization (SIP). Uncertainty with respect to the future prospects of privatized firms along with a desire to insure the success of privatization share issues explains the underpricing of SIPs. Finally, unlike portfolio of IPOs, a portfolio formed of privatized firms is hypothesized to be not systematically outperformed by the market portfolio or by a portfolio composed of firms similar to the privatized firms. The empirical implications of the discussion which focus on the financial aspect of privatization are tested on a set of state-owned enterprises which were privatized between 1980 and 1995. The results of the tests are generally consistent with the predictions. === Business, Sauder School of === Graduate