The impact of state ownership on the performance of disinvested public sector enterprises

Disinvestment as a part of economic reforms was introduced to improve performance of public sector enterprises, budget the fiscal deficit and encourage inflow of domestic and global capital. Therefore, the study intends to investigate the effect of state ownership on disinvested public sector enterprise's financial performance. Second objective is to examine the factors that affect equity ownership hold by the government in disinvested public sector enterprises. The sample of 30 public sector enterprises has been studied from 1996-2018 and a static model approach was employed. The results confirm that there is a negative impact of state ownership on performance parameters. The study finds a negative relationship between return on equity, leverage and state ownership. The results imply that government should not hold high ownership as it has a detrimental impact on the performance of PSEs. Further, the factors, return on equity, leverage negatively affect the equity ownership in disinvested PSEs. It was found the government prefers to disinvest profitable firms as such firms would generate revenue. Also, the government does not favour the firms with high debt structures as keeping more ownership in such firms could bring financial difficulties for the government.