From State to Market: A Survey of Empirical Studies on Privatization
AbstractThis study surveys the academic literature examining the privatization of state-owned enterprises (SOEs), with a focus on 70 empirical studies. The paper is written from the perspective of a policy-maker weighing the adoption of a national privatization program, who seeks answers to the following questions: (1) How large an impact have privatization programs actually had on state involvement in different national economies?; (2) What are the principal reasons for divestment?; (3) Have privatization programs significantly improved the operating and financial performance of the companies divested, and has this effect been different in transition and non-transition economies?; (4) What factors impact how governments select the appropriate method of selling state assets?; (5) How do governments price the SOEs they wish to sell and what buyers do they favor?; (6) Have investors who purchase the shares of privatized firms experienced positive short and long-term returns?; (7) What impact have share issue privatization programs had on the development of nation stock markets?; and (8) What role have privatization programs played in helping countries develop effective corporate governance systems? Privatization programs have reduced the average worldwide level of state ownership by roughly one-half (to less than six percent) over the past two decades, with the SOE share of national output falling especially rapidly in developing countries during the 1990s. Nations adopting large-scale privatization programs have done so for three principal reasons. First, the evidence now strongly suggests that privately-owned firms outperform SOEs and empirical studies show that privatization significantly (often dramatically) improves the operating and financial performance of most divested firms in both transition and non-transition economies. Second, governments have raised significant revenues through the sale of SOEs, with the cumulative value of such sales reaching $1 trillion during 1999. Third, privatization is a major component in developing both capital and product markets within a country. The choice between privatization via public share offering versus through asset sales is significantly related to factors such as firm size, government fiscal condition, the degree of shareholder protection, and the degree of income inequality. Further, those countries which have chosen the mass (voucher) privatization route have done so largely out of perceived necessity--and face ongoing efficiency problems as a result. Governments have great discretion in pricing the SOEs they sell, especially those being sold via public share offering, and they use this discretion to pursue political and economic ends. While maximizing revenues by setting high offering prices for SOEs is important to governments, many trade this objective off in favor of targeting sales to preferred buyers in direct sales and allocating shares to domestic investors (particularly SOE employees) in share offerings. On average, investors who purchase shares of firms being privatized earn significantly positive excess returns both in the short-run (due to deliberate underpricing of share issues by the government) and over one, three, and five-year holding periods. Finally, privatizations have contributed significantly to the development of national stock markets and corporate governance systems.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Regulation2point0 in its series Working paper with number 398.
Date of creation: Sep 2000
Date of revision:
Contact details of provider:
Web page: http://regulation2point0.org/
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Archive Maintainer).
If references are entirely missing, you can add them using this form.