Explaining Performance Changes in Newly Privatized Firms

William A. Andrews and Michael J. Dowling

Journal of Management Studies, 1998, vol. 35, issue 5, 601-617

Abstract: Much debate has been generated about whether privatization tends to enhance firm financial performance. The research presented here seeks to identify the strategic choices that differentiated firms with superior post‐privatization performance from those with inferior post‐privatization performance. Using agency theory as a theoretical foundation, it is hypothesized that superior post‐privatization firm performance will be associated with (1) the government not retaining a significant stock holding, (2) changes in leadership, (3) management stock options being initiated, (4) employee head count being reduced, and (5) the company being restructured financially. The sample draws from 41 privatized firms from six industry classifications and 15 countries. To accommodate comparisons of small subsamples, non‐parametric statistical methods are used. Controlling for size, industry and country (economic/regulatory effects), the hypotheses are generally supported except for the one relating to headcount.

Date: 1998
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