This study surveys the literature examining the privatization of state-owned enterprises (SOEs) We review the history of privatization, the theoretical and empirical evidence on the relative performance of state owned and privately owned firms, the types of privatization, if and by how much privatization has improved the performance of former SOEs in non-transition and transition countries, how investors in privatizations have fared, and the impact of privatization on the development of capital markets and corporate governance. In most settings privatization "works" in that the firms become more efficient, more profitable, and financially healthier, and reward investors.

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From State to Market: A Survey of Empirical Studies on Privatization

relationship. All subsequent studies confirmed it (see for example King and Levine, 1993, and the review in: Pagano, 1993). Goldsmith used a sample of 35 countries for the period between 1860 and 1963 to show the relationship between income and financial depth measured by the ratio between bank's assets and GDP. He also showed that in periods of rapid growth, financial depth grows faster than income. More details about measuring financial depth can be found in this paper. FINANCIAL DEVELOPMENT AND ECONOMIC GROWTH Velimir Šonje

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Financial development and economic growth

This study surveys the literature examining the privatization of state-owned enterprises(SOEs). We overview the history of privatization, the theoretical and empirical evidence on the relative performance of state owned and privately owned firms, the types of privatization, if and by how much has privatization improved the performance of former SOEs in both non-transition and transition countries, how investors in privatizations have fared, the impact of privatization on the development of capital markets and corporate governance. We concentrate on the empirical evidence on the effects of privatization on firm performance. In most setting privatization "works" in that the firms become more efficient, more profitable, financially healthier, and reward investors. While this holds in both transition and non-transition economies, there is more variation in transition economies. Especially in transition economies, the identity of the new owners and managers is important in determining post-privatization performance.

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It is widely accepted that, for some industries, competition across countries is" economically important and that this competition is strongly affected by exchange rate changes." This paper explores the validity of this view using weekly stock return data on 320 industry pairs" in six countries from 1975 to 1997. It is found that common shocks to industries across countries" are more important than competitive shocks. Weekly exchange rate shocks explain almost" nothing of the relative performance of industries. Using returns measured over longer horizons the importance of exchange rate shocks increases slightly and the importance of common shocks" to industries increases more substantially. Both industry and exchange rate shocks are more" important for industries that produce goods traded internationally, but the importance of these" shocks is economically small for these industries as well.

International Competition and Exchange Rate Shocks: A Cross-Country Industry Analysis of Stock Returns

The Split-Share Structure Reform granted legitimate trading rights to the state-owned shares of listed state-owned enterprises (SOEs), opening up the gate to China's secondary privatization. The expectation of privatization quickly boosted SOE output, profits, and employment, but did not change their operating efficiency and corporate governance. The improvements to SOE performance are positively correlated to government agents' privatization-led incentive of increasing state-owned share value. In terms of privatization methodology, the reform adopted a market mechanism that played an effective information discovery role in aligning the interests of the government and public investors.

China's Secondary Privatization: Perspectives from the Split-Share Structure Reform

Unlike prior studies that have focused on multinational companies, this paper documents that domestic companies face significant foreign exchange exposures. Indeed, on average domestic firm foreign exchange exposure is not significantly different from the exposures faced by firms that are directly involved in international activity. Furthermore, we find that the number of domestic firms with significant foreign exchange exposure increases with the estimation horizon used to measure exposure and the level of domestic firm exposure is related negatively to firm size, positively to the market-to-book ratio, and to a lesser extent, positively to financial leverage, negatively to asset turnover, and negatively to industry concentration. These results are robust to alternative procedures to estimate foreign exchange exposure and have significant implications for managers and accounting standard setters.

Foreign Exchange Exposure of ‘Domestic’ Corporations

With the growing importance of privatizations as a part of government policy, most empirical studies of these privatizations conclude that firm performance immediately improves following privatization. Privatization has been the most important part of the transition from the centrally planned economies of Central and Eastern Europe and has a larger impact on those economies than privatizations in other countries. However, few studies have looked at the performance of firms following mass privatization. This study uses 453 separate firms (101 firms privatized in both waves for a total of 554 observations), in the first and second waves of Czech voucher privatization. Using methodology from previous studies, we find that while the overall effects from privatization are positive, the effects vary by privatization wave, size, and industry. Firms privatized in the first wave performed worse (decline in performance following privatization) than firms privatized in the second wave. We also fail to find ownership concentration or debt as an important factor in restructuring the firm. I believe that the results are consistent with two hypotheses. First economic and political structure surrounding the privatization waves plays an important part in the success of privatization. Stable environments, both political and economic, help privatized firms restructure and improve operating performance as well as attract foreign investors and capital even in less developed countries, but in transitional economies undergoing mass privatization in rapidly changing and developing economic and political environments hinder firms from restructuring and improving performance following privatization. Results are also consistent with the hypothesis that firms with a longer preparation period prior to privatization, an “implicit seasoning”, improve performance following privatization.

The performance of privatized firms in the Czech Republic

Performance comparison between exchange-traded funds and closed-end country funds

Foreign exchange exposure of “domestic” corporations

In this article I use a sample of 178 Czech firms that were in the first wave of voucher privatization to test changes in efficiency and profitability. Based on a previous study's methodology, nonparametric tests reveal that efficiency and profitability decreased immediately following privatization. This is in contrast to earlier studies that find privatization increases these measures. Changes in firms' operations do not vary significantly by size or ownership but do vary by industry type, with nonmanufacturing firms having more positive (or less negative) changes after privatization. Evidence indicates that in spite of the disappointing findings, positive operating performance changes are taking place, such as a decrease in employment.



JEL classification: G32, L33, 052

Joel T. Harper

Papers

Foreign Exchange Exposure of ‘Domestic’ Corporations

The performance of privatized firms in the Czech Republic

Performance comparison between exchange-traded funds and closed-end country funds

Foreign exchange exposure of “domestic” corporations

Short-term effects of privatization on operating performance in the czech republic