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The purpose of this paper is to study the variance of post-privatization performance outcomes by three institutional arrangements taken place in the process of ownership transfer in UK. The logistic regression models were used for the study to link the likelihood of performance improvements after privatization with a set of explanatory variables. The findings from the research suggest an indispensable role of supportive policy measures, including market openness, post-privatization involvement of government and corporate reforms prior to privatization, in the performance effects of privatization. Both the sample size and time frame available for a quantitative analysis are constrained by the progress of UK's privatization. A questionnaire survey, as part of a more integrated model, is suggested to follow this study and probe into organizational or strategic changes after privatization. The study shows that performance improvement of privatized firms cannot be taken for granted merely by ownership change; instead, the performance gains of privatization could be realized only in concert with other institutional arrangements, including market openness, the modest and short-term bureaucratic control after privatization, and corporate health prior to privatization.

Table of Contents


Background and hypotheses10

Performance outcomes of privatization10


The role of competition14

The involvement of government in privatized enterprises18

The pre-privatization SOE reforms21

Poor performance of public enterprise25

Privatization of the three public corporations30


Data and methods45


Relative measures of performance changes46

Measures of explanatory variables48


Market competition and the likelihood of performance improvements51

State involvement in the privatized entities and the likelihood of performance improvements52

Pre-privatization corporate health and the likelihood of performance improvements54


Chapter 1: Introduction

The purpose of this paper is to study the variance of post-privatization performance outcomes by three institutional arrangements taken place in the process of ownership transfer in UK. Viewed as a remedy for market failures, state ownership experienced a period of popularity among developed nations after the 1930s. Although criticisms of state-owned enterprises (SOEs) date back to the work of Hayek (1945, 35), they did not gain momentum until the 1960s (Leibenstein, 1966, 68) when more theoretical and empirical literature began to argue that SOEs are inherently inefficient than private firms. In response to the changing circumstances of the global economic environment in the 1970s, industrialized countries concluded that only by reducing the role of the public sector could economic growth be sustained. This realization spawned a trend toward privatization that soon caught on around the world.

Although there are a plethora of measures of privatization outcomes, performance effects are commonly considered a main indicator of policy effectiveness. Unfortunately, the results across real-world empirical tests on post-privatization performance ...
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