Performance of Privatized Enterprises and Impact of Partial Privatization in a Developing Country: Case of Sri Lanka

Abstract

This study investigates the performance of privatized enterprises in a single sector, namely the plantation sector in Sri Lanka. The study provides an insight into the impact of privatization in the context of a developing economy and the impact of State and private ownership on enterprise performance. The panel data enabled the comparative study of enterprise performance under State ownership and management, State ownership and private management and, private ownership and management. It was revealed that after controlling for industry effects, privatization had led to significant increases in profitability, efficiency, capital investment, and output while employment levels had declined. Results were robust when checked for deliberate underperformance. Contrary to the proponents who espouse partial privatization as a solution to nationalist opposition to divesting of State assets, evidence indicates that induction of private management under State ownership had not been able to produce significant improvement in performance.