Political Economy of Privatized Economy
44 Pages Posted: 19 Mar 2010
Date Written: March 15, 2010
Recent evidences indicate that privatization leads to enormous benefits to society almost without undesirable costs. However, stakeholders of privatization seem not to satisfy the resulting performance of privatized firms. Using data from 202 firms privatized from 37 countries during the period 1980-2002, we follow long-run operating performance of privatized companies up to 10 years and study costs and benefits of privatization. Privatization is followed by a 1.1-percentage-point increase in the 5-year mean ratio of operating income to sales as firms catch up with global standard of industry-matched control groups, and by a 2.3-percentage-point decrease in the next 5-year mean ratio. Indeed, previously documented striking achievements were mere reflection of the world business cycle, the pace of economic activity in general and technological innovations during the last three decades.
Keywords: privatization, operating performance, external governance, deregulation
JEL Classification: E24, F5, G18, G28, G38, L33, L51, K22
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