Does Autonomy Matter in State Owned Enterprises? Evidence from Performance Contracts in India

Sangeetha Gunasekar and Jayati Sarkar

Economics of Transition and Institutional Change, 2019, vol. 27, issue 3, 763-800

Abstract: Empirical evidence on the effect of managerial autonomy on the performance of state‐owned enterprises (SOE) is surprisingly scant despite autonomy being a preferred reform instrument over partial privatization in many countries. Using longitudinal data on performance contracts of state‐owned enterprises in India, this paper finds that managerial autonomy is associated with significant increases in enterprise profitability and efficiency. Further, using India's unique reform experience where both managerial autonomy and partial privatization were pursued side by side, the paper finds that while the positive effects of autonomy continue post‐partial privatization, the effects of partial privatization on performance are ambiguous. Specifically, once autonomy is controlled for, partial privatization has a positive effect on SOE profitability only after it crosses a critical level of government disinvestment. The findings suggest that organizational reforms such as granting managerial autonomy can be an important policy instrument in improving SOE performance particularly in cases where governments are unable to make substantial disinvestments.

Date: 2019
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Persistent link: https://EconPapers.repec.org/RePEc:wly:ectrin:v:27:y:2019:i:3:p:763-800

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