Privatization and performance: evidence from telecommunications sector

Abstract

There is a continuing debate on whether or not ownership changes accompanying privatization of state-owned enterprises (SOEs) lead to performance improvements of such firms. Since profitability measures alone are possibly inappropriate for SOEs, we address this very significant current question using a novel approach. We test the performance of a large sample of telecommunication firms around the world, 4 years before and 4 years after privatization, using two parallel measures namely financial performance measures and production performance measures. Our purpose is to identify if both approaches could corroborate stronger evidence for or against maintained hypothesis of performance improvements after privatization. The overall finding for this industry indicates significant improvements in both financial and production performance after privatization. Further research is warranted to extend this parallel-methods approach to firms in other industries.

Keywords:

• financial performance
• ownership
• DEA-Malmquist
• privatization
• telecommunications
• total factor productivity

Acknowledgements

Viverita's research assistance is highly acknowledged. Special thanks are expressed to Dilip Ghosh and the participants in the International Conference on Banking and Finance, Greece, 2002, for providing helpful comments. Authors are responsible for any remaining errors. We thank the Editor and the two anonymous reviewers for their useful comments.

Notes

1 Tim Coelli and Prasada Rao are acknowledged for making this software available for us to run the DEA-Malmquist tests.