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Partial Privatization and Firm Performance: Evidence from India

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  • Nandini Gupta

    (William Davidson Institute and University of Michigan)

Abstract

Privatization in India is mostly limited to the diffuse sale of minority stakes in firms. Since control rights have not been transferred to private owners it is widely contended that the process has had little impact on firm behavior. We find however that even the sale of minority stakes has a positive impact on firm performance and productivity. As the government remains the controlling owner in these firms, we infer that the improvement is attributable to the role of the stock market in monitoring managerial performance rather than to a change in owners' objectives. Consistent with this interpretation, we find that improvements in earnings are due to an increase in the productivity of labor rather than layoffs. Partial privatization continues to affect the sales and operating efficiency of firms when we control for competitive conditions, and the evidence also suggests that privatization and competition have a complementary impact on firm performance.

Suggested Citation

  • Nandini Gupta, 2001. "Partial Privatization and Firm Performance: Evidence from India," Industrial Organization 0112002, University Library of Munich, Germany.
    • Handle: RePEc:wpa:wuwpio:0112002
    Note: Type of Document - pdf; prepared on pc; to print on HP; pages: 31; figures: included.
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    Cited by:

    1. Alanazi Ahmed & Liu Benjamin & Forster John, 2011. "Saudi Arabian IPOs and Privatized Firms Profitability," Review of Middle East Economics and Finance, De Gruyter, vol. 7(1), pages 67-90, May.
    2. Truong, Dong Loc & Lanjouw, Gerrit Jan & Lensink, Bernardus Wander, 2004. "The impact of privatisation on firm performance in a transition economy: the case of Vietnam," Research Report 04C31, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
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    More about this item

    Keywords

    partial privatization; India; manager incentives; firm behavior; stock market monitoring;
    All these keywords.

    JEL classification:

    • G14 - Financial Economics - - General Financial Markets - - - Information and Market Efficiency; Event Studies; Insider Trading
    • G3 - Financial Economics - - Corporate Finance and Governance
    • L2 - Industrial Organization - - Firm Objectives, Organization, and Behavior
    • L3 - Industrial Organization - - Nonprofit Organizations and Public Enterprise
    • M2 - Business Administration and Business Economics; Marketing; Accounting; Personnel Economics - - Business Economics

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