In principle, this should be unchanged because if the asset is priced correctly, the price should reflect the future expected earnings from the company.
In practice, pricing may be set low to achieve distributional targets or to support elites and friends. This would worsen the government's balance sheet. At the same time, the new owners may be more productive than the state, and hence raise activity and profits, with a positive effect on GDP and government revenues. Saul Estrin is a professor of management at the London School of Economics; correspondence to be sent to s.
This work was supported by the U. Kikeri and Nellis have also conducted a wide-ranging assessment of privatization. The privatization barometer database provides world aggregate data on privatization and a country breakdown for developed countries. We are not aware of an alternative database providing such information. This was also confirmed by several academic and practitioner experts on privatization whom we contacted during the course of this research.
Infrastructure includes transportation, water and sewerage, telecommunications, natural gas transmission and distribution, and electricity generation, transmission, and distribution. The manufacturing and services sector includes agribusiness, cement, chemicals, construction, steel, hotels, tourism, airlines, maritime services and other sub-sectors that are not infrastructure or finance related.
The financial sector includes banks, insurance, real estate, and other financial services. The energy sector includes the exploration, extraction, and refinement of hydrocarbons, oil, and natural gas. The primary sector includes the extraction, refinement, and sale of primary minerals and metals such as coal and iron ore.
The ownership pattern resulting from privatization often depends on the mode of privatization chosen. Thus, private sales usually lead to concentrated strategic owners, while mass privatization usually generates widespread ownership, at least initially.
The impact of mode of privatization on national economic performance in transition economies is explored in Bennett, Estrin, and Urga Note, however, that in the utilities sector particularly for water , the technology and the nature of the product restrict the possibility of competition in the market and therefore the efficiency gains following privatization.
In this case, competition for the market to win the contract or concession agreement has to be organized. Given the ambiguous results of privatization in noncompetitive markets in terms of improving economic performance Megginson and Netter , regulation may prove to be more effective Kirkpatrick, Parker, and Zhang The performance of privatized banks in the seven countries of the West African Economic and Monetary Union from to improved in the first year after privatization, but not after that.
Improvements in performance in Nigeria were observed in fully-divested banks, but not in the ones where the government retained minority shareholdings. Whereas competition is feasible in telecommunications markets, it is usually cost-inefficient in the market for water services, given the scale of the investment in network assets required to deliver the product.
Privatization is also not associated with the profitability and efficiency of government-owned firms. Note, however, that this method may suffer from a trade-off with competition objectives since foreign firms may seek local monopoly power. Such sales may be accompanied by conditions with respect to technology transfer, domestic content of inputs, employment, environment, etc.
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Sign In or Create an Account. Sign In. Advanced Search. Search Menu. Article Navigation. Close mobile search navigation Article Navigation. Volume Article Contents Abstract. Privatization Trends: Stylized Facts. Privatization Process: Distributional Impacts. Policy Implications. Concluding Comments. Saul Estrin , Saul Estrin. Correspondence to be sent to s.
Oxford Academic. Adeline Pelletier. Select Format Select format. Permissions Icon Permissions. Abstract This paper reviews the recent empirical evidence on privatization in developing countries, with particular emphasis on new areas of research such as the distributional impacts of privatization. Open in new tab Download slide. Value of privatisation transactions in developing countries by region, to Source: World Bank, Privatization database.
Table 1. Methodology and Classifications of Empirical Papers. Small sample 49 observations. Positive impact of foreign ownership on performance of banks, due to more risk-seeking strategies by foreign owners. Megginson, Nash, and van Randenborgh methodology: period of eleven years: three years before and eight years after privatization. Unbalanced sample of 69 banks with annual data for the period through , with a total of observations.
Performance improvements following privatization, but negative effects of the continuing minority government ownership on the performance of many Nigerian banks. Privatised banks increased their performance, but not restructured banks.
Stochastic frontier analysis SFA to estimate bank efficiency. Transition countries Bulgaria, the Czech Republic, Croatia, Hungary, Poland, and Romania ; 67 different banks from to observations. Foreign-owned banks are most efficient, and government-owned banks are least efficient. Voucher privatization does not lead to increased efficiency and early-privatised banks are more efficient than later-privatised banks and no evidence of selection effect.
IV Boubakri et al. Examine three categories of controlling owners: foreign investors, local industrial groups, and the government itself.
Megginson, Nash, and van Randenborgh methodology on a panel of banks. Period of seven years: three years prior to privatization and three years post-privatization, including the year of privatization itself. Profitability increases post-privatization, but it depends on the type of owner higher economic efficiency exhibited by banks owned by local industrial groups and foreign owners. Stock market data.
Megginson, Nash, and van Randenborgh methodology: 3 years pre-privatization operating performance data and 5 years post privatization. Examines pre- and post-privatization operating performance of the privatised banks relative to that of the rival banks. Analyze 21 privatizations and 65 rival banks from middle- and low-income countries.
Statistically significant improvement in operating performance for the privatized banks in the pre- and post-privatization period, apart from reduction in loan loss provisions ratio.
One reason for the lack of improvement might be the continued government ownership of these banks. Employ regressions that show the evolution of UCB, Stanbic, and the post-merger bank in terms of profitability, portfolio quality, operating efficiency, and credit growth.
Uganda, to , observations quarterly data. Improvement in profitability and rate of credit growth compared to pre-privatization for UCB. Examines the privatization of National Bank of Commerce. Test whether the privatization of the two successor banks to the original National Bank of Commerce resulted in improved performance.
Sale to a foreign strategic investor Rabobank from the Netherlands resulted in improved profitability and reductions in non-performing loans, along with an increase in the ratio of loans to total assets. III Telecommunications Wallsten Measures of performance: mainline penetration, payphones, connection capacity, prices for local calls, labour efficiency. Megginson, Nash, and van Randenborgh, includes fixed effects. Privatization combined with an independent regulator is positively correlated with telecom performance measures.
No clear benefits of privatization alone. IV Gasmi, et al. Performance of privatization depends on regional factors related to market profitability, wealth, and geography. Efficiency is not significantly different in private companies than in public ones. IV Kirkpatrick, Parker, and Zhang Stochastic cost frontier ; Africa; 76 observations, including 10 private-sector operations.
No strong evidence of differences in the performance of state-owned water utilities and water utilities involving some private capital in Africa.
IV Tan Measures of performance: Nonrevenue water NRW , unit costs, tariffs, water production capacity the amount of water treated for distribution , length of pipes. Case study graphs and statistics. Different ownerships: public ownership, corporatized, public—private, private. No evidence of improvement in efficiency and capital investment after privatization.
I Utilities - electricity Zhang, Parker, and Kirkpatrick Measures of performance: net electricity generation per capita of the population, installed generation capacity per capita of the population, net electricity generation per employee in the industry and electricity generation to average capacity capacity utilization.
The privatization variable used in the study was constructed as the percentage of generating capacity owned by private investors. Fixed effects country and year to deal with endogeneity. Panel data for 36 developing and transitional countries, over the period to Competition seems to be most effective to increase performance. On their own privatization and regulation do not lead to significant improvement in performance. II Balza, Jimenez, and Mercado Measures of performance: real end-user prices for residential electricity excluding taxes ; percentage of households with access to electricity; electricity capacity generation; and electricity loss as a percentage of total electricity production.
Privatization measured as the cumulative investment in the electricity sector as a percentage of average gross capital formation in the period to Country-level analysis. Countries with higher private investment tend to provide more efficient and better-quality electricity services. Open in new tab. Table 2. Summary of Distributional Impacts of Privatization Spillovers. Distributional impact. If competitive bidding is instituted for a service, service quality can improve even if the service is retained in-house.
The reason is simple: competition induces in-house and private service providers to provide quality services in order to keep complaints down and keep the contract. Service quality is not assured, however, by privatization. Contracts must be well-designed with performance standards that create incentives for high quality service. Furthermore, diligent monitoring of the contractor's performance through customer surveys and on-site inspections must also be performed by government in its oversight role.
Private management can significantly lower operating costs through the use of more flexible personnel practices, job categories, streamlined operating procedures, and simplified procurement. Private ownership can stimulate innovation. Competition forces private firms to develop innovative, efficient methods for providing goods and services in order to keep costs down and keep contracts. These incentives, for the most part, do not exist in the public sector.
Privatization allows state officials to spend less time managing personnel and maintaining equipment, thus allowing more time to see that essential services are efficiently delivered. Privatization is one tool to make bureaucracies smaller and more manageable. Large private corporations often sell off assets that are underperforming or proving too difficult to manage efficiently.
Under new owners and leaner management, such divisions often receive a new lease on life. Note that privatization also describes the transition of a company from being publicly traded to becoming privately held. This is referred to as corporate privatization.
Privatization of specific government operations happens in a number of ways, though generally, the government transfers ownership of specific facilities or business processes to a private, for-profit company. Privatization generally helps governments save money and increase efficiency. In general, two main sectors compose an economy: the public sector and the private sector.
Government agencies generally run operations and industries within the public sector. In the U. Postal Service, public schools and universities, the police and firefighter departments, the national park service, and the national security and defense services.
There are two types of privatization: government and corporate; although the term generally applies to government-to-private transfers. Enterprises not run by the government comprise the private sector. Private companies include the majority of firms in the consumer discretionary, consumer staples, finance, information technology, industrial, real estate, materials, and healthcare sectors.
Corporate privatization, on the other hand, allows a company to manage its business or restructure its operations without the strict regulatory or shareholders ' oversight imposed on publicly listed companies.
This often appeals to companies if the leadership wants to make structural changes that would negatively impact shareholders. In order to be considered privately owned, a company cannot get financing through public trading via a stock exchange.
Dell Inc. In , with approval from its shareholders, Dell offered shareholders a fixed amount per share, plus a specified dividend as a way to buy back its stock and delist.
Once the company paid off its existing shareholders, it ceased any public trading and removed its shares from the NASDAQ Stock Exchange, completing the transition to being privately held. Proponents of privatization argue that privately-owned companies run businesses more economically and efficiently because they are profit incentivized to eliminate wasteful spending. In certain states and municipalities, liquor stores and other non-essential businesses are run by public sectors, as revenue -generating operations.
Before , the state of Washington controlled all sales of liquor within the state, meaning that only the state could operate liquor stores. This policy allowed the state to regulate how and when liquor was sold, and to collect all revenue from liquor sales within the state.
However, in , the state moved to privatize liquor sales. There have been several attempts to privatize the Social Security system in the U. Once privatized, private businesses such as Costco and Walmart could sell liquor to the general public. All previously state-run stores were sold to private owners or closed, and the state ceased collecting all revenue from liquor sales.
One of the most famous and historically important examples of privatization occurred after the fall of the Soviet Union.
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