Abstract
Purpose This paper aims to attempt to empirically investigate the impact of privatization on the performance of central public sector enterprises in India. Further attempt is made to explore whether privatization is a necessary or sufficient condition for improvement of performance of central public sector enterprises. Design/methodology/approach The scope of the study is limited to financial and operating performance analysis of 206 central public sector enterprises in India. Multiple regression analysis has been used to determine the magnitude and direction of relationship between dependent and independent variables and identify variables other than privatization which affects performance. Findings The study found that financial and operational performance of firms has improved significantly due to privatization. Further, firm-specific factors and other parallel reforms adopted by enterprises have significantly influenced their performance. The established regression model is highly significant with F-ratio of 31.825 at 99% significance level. The degree of explanation of the model is robust with adjusted R2 at 0.956 implying that only 4.40% of explanation in the dependent variable cannot be explained by designated independent/explanatory variables. Originality/value The study would be useful to public policymakers to reach to a policy view on whether further disinvestment/privatization of central public sector enterprises need to be continued, and if so, then to what extent and direction.
Highlights
The genesis of public sector dates back to the origin of the First and the Second World Wars
Statistical results In the initial model, we have considered as high as 30 explanatory variables such as net worth (NW), total assets (TA), capital employed (CE), gross working capital (GWC), net profit margin (NPM), dividend rate (DR), net sales (NS), overhead cost (OC), sales efficiency (SE), net income efficiency (NIE), raw-material turnover ratio (RTR), debt equity ratio (DER), interest coverage ratio (ICR), cash ratio (CR), market coverage (MC), enterprise value (EV), earnings per share (EPS), profit or loss (POL), industry sector (IS), ownership structure (OS), percent stake divested (PSD), disinvestment amount realized (DAR), disinvestment efficiency (DE), number of years of disinvestment (NYD), expenditure on R&D (ERD), autonomy (ATMY), performance contract (PC), listing in the stock exchanges (LSE), PE ratio (PER) and corporate governance (CG)
The study has established that financial and operational performance of Central Public Sector Enterprises (CPSEs) has improved significantly due to disinvestment/ privatization
Summary
The genesis of public sector dates back to the origin of the First and the Second World Wars. Public-sector-driven economic activities came into existence after the First World War, especially to re-build the war devastated economies, to accelerate the pace of their development and to save their economies from the ravages of great depression. Post the Second World War, large number of countries in Asia, Africa and North America were. © Abhijit Phukon and Divya Verma Gakhar. The full terms of this licence maybe seen at http://creativecommons.org/ licences/by/4.0/legalcode
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