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Liberalization, Corporate Governance, and the Performance of Newly Privatized Firms

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  • Narjess Boubakri
  • Jean-Claude Cosset
  • Omrance Guedhami
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    Abstract

    This paper seeks to provide an answer to the following question, namely when and how does privatization work? Using a unique sample of 201 firms headquartered in 32 developing countries, we document a significant increase in profitability, efficiency, investment and output. Next, using univariate tests, we show that corporate governance mechanisms and economic reforms and environment have an effect on the changes in operating performance. For example, we find that privatization yields better results when stock market and trade liberalizations precede it. The results of a regression analysis, across a number of specifications, indicate that economic reforms and environment as well as corporate governance variables explain the post-privatization performance changes. In particular, economic growth, control relinquishment by the government and foreign ownership are key determinants of profitability changes. We also find higher improvements in efficiency and output for firms in countries in which stock markets are more developed and where property rights are better protected and enforced. Finally, our results suggest that trade openness is an important determinant of the post-privatization increase in investment.

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    File URL: http://www.wdi.umich.edu/files/Publications/WorkingPapers/wp419.pdf
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    Bibliographic Info

    Paper provided by William Davidson Institute at the University of Michigan in its series William Davidson Institute Working Papers Series with number 419.

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    Length: pages
    Date of creation: 01 Dec 2001
    Date of revision:
    Handle: RePEc:wdi:papers:2001-419

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    Keywords: liberalization; corporate governance; privatization; performance;

    This paper has been announced in the following NEP Reports:

    References

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    Cited by:
    1. Kate Bayliss, 2009. "Private Sector Participation in African Infrastructure: Is it Worth the Risk?," Working Papers 55, International Policy Centre for Inclusive Growth.

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