Performance of privatised and private firms : empirical evidence from Egypt

Abstract

Privatisation has been a major political and economic phenomenon over the past few decades, and researchers continue to target it for both theoretical and empirical work. The objective of this thesis is to evaluate the Egyptian experiment concerning its privatisation programme, and to determine whether this programme has affected the performance of privatised firms. Using 15 years of data, which cover the period 1990/1991 to 2004/2005; this thesis empirically investigates three main issues. Firstly, it examines whether the performance of privatised firms improves following privatisation through comparing pre- and postprivatisation performance in terms of profitability, operating efficiency, output, leverage and level of employment. Secondly, it evaluates the performance changes of privatised Egyptian firms after matching them to control firms (private firms) based on size and industry. Thirdly, it evaluates the impact of the post-privatisation sectoral environment and the pre-privatisation experience on post-privatisation performance. For the first two issues, several statistical techniques, such as parametric t-test, the non-parametric Wilcoxon signed-rank test, and Mann-Whitney test are performed. The results from this analysis indicate clearly that there are significant increases in both profitability and operating efficiency as well as significant declines in the leverage and employment, but there is no significant change in the output. Furthermore, the results show a significant difference in performance changes between privatised firms and private firms according to most performance measures. As to the third issue, several multi-regressions are used to model the relationship between the post-privatisation performance (as dependent variable) and ownership structure, the performance experience of the privatised firms pre-privatisation, the performance of their counterparts from competitor firms (private firms), and firm size (as independent variables). The results from this analysis demonstrate that the ownership structure really matters and that the performance of privatised firms depends on the degree of state ownership involvement; also, through the passage of time, the competitive environment has a significant impact on most performance measures of privatised firms. As such, this thesis represents the first study in Egypt to evaluate and compare the performance of privatised firms with the performance of their counterparts from private firms. The study contributes to the work on privatisation by comparing the performance changes of privatised firms to those of already private ones, so that the study can determine whether the post-privatisation performance matches that of the private firms. A caveat to the finding of this thesis is that the privatised firms might need a longer period to reflect more fully the impact of the privatisation programme on some of their performance measures.