Detecting the Performance Consequences of Privatizing Egyptian State-Owned Enterprises: Does Ownership Structure Really Matter?

Mohammed Omran

The Arab Academy for Science and Technology, College of Management and Technology, Miami, Alexandria, Egypt, PO Box. 1029. Email: momr66@yahoo.com

First Draft: July 2001

* I would like to thank Juliet D’Souza, Scott Linn and John Pointon for their helpful discussion. The author indeed gratefully acknowledges William Megginson for his invaluable comments, guidelines and suggestions, so he is due special thanks. I also would like to thank my colleagues at the Arab Academy for Science and Technology in Egypt for help in sorting and entering the data. Finally, the author would like to thank the Fulbright Commission office in Egypt for their financial support, the University of Oklahoma, Michael F. Price College of Business, Division of Finance for providing invaluable resources throughout the Fulbright Visiting Scholar period, and the Public Enterprises Information Center for help in providing the data for this research. All errors are still mine.

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Detecting the Performance Consequences of privatizing Egyptian State-Owned Enterprises: Does Ownership Structure Really Matter?

Abstract

The intention of this paper is to evaluate the financial and operating performance of the newly privatized Egyptian firms and to highlight whether such performance differs across firms according to their new ownership structure. The study covers 69 firms, which were privatized from 1994 to 1998. Even though the study follows the standard approach of Megginson, Nash and Randenborgh (1994), Boubakri and Cosset (1998), and D’Souza and Megginson (1999), I consider another dimension in testing and evaluating the changes in financial risk of privatized firms; I document significant improvements in profitability, operating efficiency, capital expenditure, and dividends. On the other hand, I find significant decreases in employment, leverage, and risk, whereas output shows an insignificant decrease following privatization. I then classify and analyze the 69 firms according to the privatization method of sale: majority, minority, employees’ shareholder association (ESA), and anchor investors. My empirical results find that firms which were sold to ESA and anchor investors seem to outperform other types of privatization; in contrast, the minority type tends to perform less when compared with the other privatized firms.

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I Egyptian Economic Change and Privatization The transformation from centrally planned economies to market-based economies is a complicated process, however, the Egyptian government was forced to launch its first agreement with the International Monetary Fund (IMF) because of the poor condition of its economy in the mid 1980s. The IMF canceled this agreement after only three months because of the failure of the Egyptian government to meet the necessary requirements. In late 1990, it became obvious that the Egyptian economy could not meet the needs of its society without external aids. In the meantime, Egypt faced a big problem with its creditors, as it was not able to maintain debt service payments. The following key indicators show to what extent the Egyptian economy was in crises by late 1990: * Total external debt around US $ 49 billion. * Total external debt to GDP 150%. * Budget deficit around 20% of GDP. * Rate of inflation more than 20%. * Negative real interest rate around 6%. * Reserves just over three weeks of imports. In the light of the above, Egypt was obliged to turn again to the IMF for help; in turn, another round of negotiations concluded in an economic reform program by the end of 1990. The key elements of this program were to: (see Ash, 1993; Youssef, 1996; and Road, 1997): * Reduce the size of the public sector through privatization. * End controls over investment and eliminate most tariffs on imports. * Sell manufactured goods at market prices. * Raise energy and transport prices to realistic levels. * Reduce consumer subsidies and target them towards the poorest group. *Deregulate private investment and encourage private sector activity in all sectors including financial services. The measure of the success achieved by Egypt’s economic reform program since the end of 1990 can be seen in Table I.

Insert Table I near here With regard to the privatization program, it is worthwhile mentioning that state-owned enterprises (SOEs) have handled most of Egypt’s economic activity under the direction of the various ministries since the 1960s. Among their objectives, they have been expected in the past to create as many employment opportunities as possible. The poor management and weak capitalization of the SOEs inevitably had an effect on their efficiency and financial viability (Road (1997) and Banker (1990)). The criticisms of the SOEs reflect their lack of efficiency and profitability, which may be due to a poor allocation of resources, and ineffective management. The productivity of SOEs is generally lower than the productivity of the private sector. In many developing countries, the governments use the state sector enterprises to achieve social objectives, such as to supply goods and services with lower prices compared with the usual cost of these goods and services, and

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also to provide opportunities to reduce unemployment (Liu (1995)). Consequently, SOEs can be considered a contributor to the government budget deficit (Bouin and Michalet (1991)). Davies (1971), Yarrow (1986) and Boardman and Vining (1989) conclude that private enterprises are more efficient and more profitable than SOEs. According to the above, the privatization process is an important issue in any economic reform program as it is a crucial point in improving the performance of SOEs. As Egypt adopted such a program in late 1990, the reduction in size of SOEs through privatization has therefore proven to be an important part of this program. In 1991 Public Enterprise Law No. 203 was introduced as a transitional measure. The immediate purpose of this law was to give autonomy to SOEs by guaranteeing to their new boards an increased level of accountability for their operations and to promote the conducting of business according to market principles. The first stage in the privatization process, which started in May 1991, was to cut off subsidies to SOEs, followed by removing them from direct ministerial control (Field (1995)). The three hundred and fourteen SOEs were grouped in 1991 under twenty-seven holding firms (now reduced to fourteen) responsible for all the affiliates in a particular sector (Road (1997) and Timewell (1991)). Under the government’s strategy for divestment of SOEs, two approaches were undertaken initially. The first was to sell shares through the stock market, and the second was is to sell strategic stakes of shares to anchor investors through public auction or to sell firms to employees’ shareholder associations (ESAs) (McKinney (1996)). Besides these two approaches, liquidation of firms took place for those firms that suffered from a huge debt burden and could not be adjusted anymore. The performance of the Egyptian privatization program can be seen in Table II.

Insert Table II near here As seen from Table II, the privatization program, which actually started in 1994 was slow at the beginning as only minor stakes (10 per cent to 20 per cent) were allowed to be sold. However, starting from mid 1996 when the new Cabinet was appointed, the privatization program was accelerated. The new Cabinet began to spread a new message and attract international interest in Egypt. To increase the supply of stocks on the exchange for the first time since starting the privatization program, the government sold more than 50 per cent of its stakes in SOEs; in turn, the value of privatized firms has accelerated significantly. However, for many economic reasons such as a shortage in liquidity, a foreign currency crisis and a negative performance of the Egyptian stock market, the privatization program has to be postponed until the Egyptian economic climate improves markedly. This paper has a straightforward goal of detecting the performance changes in SOEs following privatization in Egypt. Such work would add additional empirical findings to the existing literature by looking at another part of the world (Middle East Region), as it seems to have been neglected in the previous studies. Based on its reasonable period of experience regarding privatization, Egypt has been targeted to represent the Region. In addition to this objective, it is important to understand the effects of new ownership structures on the performance of firms given that the Egyptian government adopted several ways of implementing its privatization program, which yields marked types of ownership, and this

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in fact enables me to distinguish among the performance changes of privatized firms according to the ownership structure following privatization. This also sheds light on which policy the government should adopt to achieve the most beneficial outcome from privatization. Using a sample of 69 Egyptian firms, privatized during the period from 1994 to 1998, my findings of significant increases in profitability, operating efficiency, capital expenditure, dividends and a significant decline in leverage are consistent with what most other empirical studies have found, in particular comprehensive studies, i.e. Megginson et al. (1994), Boubakri and Cosset (1998) and D’Souza and Megginson (1999), but contrast with Harper (2001). Additionally, I document a significant decline in employment and risk. The insignificant change that the Egyptian privatized firms exhibit in output tends to contrast with literature. Moreover, I consider the specific-firm-history performance to distinguish among types of privatized firms according to the new ownership structure by utilizing two methods: normalization and relative performance change. I point out that firms which sold to ESA and anchor investors seem to outperform other type of privatized firms, while minority privatized firms tends to under perform the rest of the privatized firms. Because one of the sub-samples is small, namely anchor investor privatized firms, an important caveat to the results is that one should bear in mind that more frequent observations might perhaps have provided different implications. However, the important issue here is to investigate into the effect of the type of new ownership structure following privatization upon financial and operating performance of former SOEs. Nevertheless, although these are arguably crucial to the objective of the paper, the results need to be considered with the context of the data set. The rest of this paper is structured into five sections. Section II highlights the empirical findings on the impact of privatization upon firms’ performance. Data used in this paper are discussed in section III. Section IV specifies empirical models that I apply to test for the performance change in privatized firms. Section V reports the empirical findings and analysis. Conclusions are in Section VI.

II Selected Empirical Research

Privatization can be defined as the transfer of SOEs to the private sector (Peacock (1984)). While both Beesley and Littlechild (1983) claim that privatization means, in general, the sale of at least 50 per cent of the shares to private shareholders. Shackleton (1984), Pirie (1985), Dunleavy (1986), Haritos (1987), Dodgson and Topham (1988) and Clague and Rausser (1992), take broadly the same meaning of privatization- the process of transferring the SOEs to the private sector through the sale of some or all of the government assets to the private sector. However, the privatization process includes not only the transfer of SOEs to the private sector but also the change in the style of management from the socialist style to an open-market style (Levigne (1995)). The reported objectives of privatization vary from one author to another. Mainly, objectives of privatization are: to reduce the burdens to the exchequer and reduce the state’s budget deficit; to consolidate the social and political grip of capitalism by building up popular

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capitalism; to make the economy more competitive; to reduce the interference of politics in the working of commerce; to bring workers into share ownership; to encourage more widespread share ownership; and to speed up the development of the capital market (Letwin (1988)). Grosfeld (1991) and Lieberman (1994) claim that privatization seeks to achieve many objectives. One aspect of these objectives is direct, such as reducing the deficit in the government budget and raising cash from selling the state assets. Another aspect is indirect, which includes increasing efficiency and introducing new technology. Also, Stevens (1992) indicates that privatization aims at improving the efficiency of the economy by reducing the government’s financial burden and contributing to the development of the domestic financial market. On the other hand, Bornstein (1992) and Jackson (1992) argue that privatization in developing countries under economic reform programs in a broad sense might pursue different aims. Politically, it means taking away property from the state and creating a new class of capitalists and entrepreneurs. Equity considerations suggest returning property to those who have been forcibly deprived of it during the nationalization process, or giving priority to employees for buying shares in their enterprises, or even giving away state assets to citizens. Also, privatization may be pursued for efficiency reasons through creating a better management of existing state enterprises, which may increase productive static efficiency. In fact, during the past two decades, privatization has become one of the most important economic phenomena in the world. Roche (1996) argues that around $ 6 trillion would be raised through privatization over the next 20 years. More than $ 85 billion for privatization was handled through public share offerings from 1980 to1985 (Euromoney 1996). A few years ago, namely in 1997, sales of public enterprises totaled $ 161 billion worldwide. Comprehensive academic works have been undertaken concerning the performance implications of privatization upon firms after transforming from SOEs to private sector. With regards to this point, I could discriminate between two types of work; one has attracted researchers just in the past few years and concentrates on market measures by looking at abnormal initial and aftermarket returns to investors in share issue privatization, while the other type of work (which this paper is focusing on) was undertaken earlier than the previous one and is based upon some accounting measures which look at the financial and operating performance of privatized firms. As for the first type of work, two kinds of behavior have been documented: one relates to the initial returns, and the other concentrates upon aftermarket performance. For initial returns, mainly, most of the studies show a significant initial positive return based on returns over one day of trading. Lougharan, Ritter and Rydqvist, updating their information of the Pacific-Basin Finance Journal article (1994) in April 2001, found that the average initial returns of initial public offerings (IPOs), whether share issue privatizations (SIPs) or private initial public offerings (PIPOs), for 38 countries is as low as 5.4 per cent for Canada and as high as 256.9 per cent for China. However, this phenomenon is known as “underpricing IPOs”, and there are many explanations for this. Regardless of the reasons behind underpricing, numerous empirical studies document such a positive initial return of IPOs (see for example, Jenkinson and Mayer (1988) for the UK and France, Perotti and Guney (1993) for Malaysia, Spain and Turkey, Dewenter and Malatesta (1997) for 8

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countries, Choi and Nam (1998) for 30 countries, Paudyal, Saadouni, and Briston (1998) for Malaysia, Jelic and Briston (1999) for Hungary, Jones, Megginson, Nash and Netter (1999) for 59 countries, and Aussenegg (1997) for Austria and (2000) for Poland). Contrary to the initial performance of IPOs, in the long run mixed results for performance of these issues have been found. Levis (1993) documents positive long-run returns for investors in 12 UK privatized firms from 1980-1988. Also, Menyah, Paudyal and Inganyete (1995) in a sample of 40 firms found that UK privatizations were underpricing and investors achieved long run positive abnormal returns, and Menyah and Paudyal (1996) document the same results for the UK. Numerous other academic studies show the same findings (see for example, Jelic and Briston (1999) for 25 Hungarian SIPs, Boardman and Laurin (2000) for 99 SIPs in multiple countries, Boubakri and Cosset (2000) for 120 SIPs in 26 developing countries, Choi, Nam and Ryu (2000) for 204 SIPs from 37 countries, Megginson, Nash, Netter, and Schwartz (2000) for 158 SIPs from 33 countries, and Dewenter and Malatesta (2001) for 102 large SIPs). In contrast to the above-mentioned studies, several empirical research studies show insignificant positive long-run performance for IPOs, to the extent that many of them even indicate negative returns, which means that IPOs, given a longer horizon, underperform the market (for more details, see Ritter (1991) for 1526 PIPOs in the US, Aggrawal, Leal and Hernandez (1993) for 9 Chilean SIPs, Keloharju (1993) for 80 Finnish PIPOs, Loughran and Ritter (1995) for 3702 PIPOs in the US, and Paudyal et al. (1998) for 18 Malaysian SIPs). Leaving aside the market measures and concentrating on accounting measures, numerous academic papers deal with this matter at many levels: a case study, a single country, and an international level, compromising emerging and developed markets. At the case study level, Eckel, Eckel, and Singhal (1997) analyze the effect of privatization on the performance of British Airways. The results of this study indicate that stock prices of British Airways’ competitors fell abnormally, for instance, US competitors’ stock prices fell a significant 7 per cent upon British Airways’ privatization. In the meantime, the airfares on routes served by British Airways decreased significantly relative to control groups. Further, an overall improvement in British Airways’ efficiency was indicated by an increase in its market share by 10 per cent in three years time after privatization. In conclusion, the study argues that when a firm is privatized, several factors change simultaneously: the ownership changes from the government to private hands; the firm’s objective changes to profit maximization, and changes in regulation designed to enhance competition in product markets are likely to take place, and all theses factors will ultimately improve economic efficiency. Another case study was undertaken in an emerging economy, namely, Argentina, where Ramamurti (1997) examines the impact of privatization on the Argentinean national freight and passenger railway system and concludes a significant increase in labor productivity (370 per cent) but a significant decrease in employment by 78.7 per cent.

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As far as a single country is concerned, Martin and Parker (1995) find mixed results of performance, in terms of profitability and efficiency, for 11 privatized firms in the UK over the period of 1981 to 1988. Some other studies look at privatization in transitional economies: Barberies, Nicholas, Boycko, Shleifer, and Tsukanova (1996) examine performance changes in 452 Russian privatized firms and conclude that changes in ownership and management styles are likely to lead to a value-maximizing restructuring. For 706 Czech Republic privatized firms, Claessens, Djankov, and Pohl (1997) find that concentrated ownership structure, ownership by local investors, and ownership by bank-sponsored investment privatization funds increase profitability and Tobin’s q. Another study targets Mexico as LaPorta and Lo′pez-de-Silanes (1997) look at the performance of 218 privatized firms relative to an industry-matched control group. They address significant improvements in output and sales efficiency. Additionally, the performance of privatized firms narrows the gap with privately controlled firms. However, a significant decrease in the level of employment has been documented. While the above-mentioned studies concentrate either on a case study or a single country, which allow consistent data and make authors better able to analyze the effect of economic and market conditions surrounding privatization, comprehensive work addresses the impact of privatization on a broader variety of countries: developed, developing, or both. With regard to developing countries studies, Plane (1997) explores the effect of a privatization program that has been adopted by 35 developing countries between 1988 and 1992 on the rate of growth of the GDP and documents a significant positive effect of privatization on economic growth. Boubakri and Cosset (1998), in a comprehensive study, examine the financial and operating performance of 79 privatized firms from 21 developing countries during the period from 1980 to 1992. They document significant improvement -using unadjusted and market-adjusted measures- in profitability, operating efficiency, capital investment spending, output, employment level, and dividends, while a decline in leverage is observed but is significant only for unadjusted measures. However, for multi-culture studies, Galal, Jones, Tandon, and Vogelsang (1992) measure the performance changes in 12 privatized firms from both developing and developed economies: namely, Chile, Malaysia and Mexico, and the UK as a developed country. They compare the actual postprivatization performance of the privatized firms with their predicted performance had they not been privatized and find net welfare gains in 11 firms. Megginson et al. (1994), in a large scale and more comprehensive study, compare the pre- and postprivatization performance of 61 firms in 18 countries (out of which 6 were from developing countries and 12 from developed countries) in 32 industries that experienced full or partial privatization through public share offerings during the period from 1961 to 1990. The results of this study indicate that, for most firms of the sample, there was a significant increase among newly privatized firms in profitability, efficiency, capital investment spending, employment, and dividend payout, while these firms witnessed a significant decrease in leverage. However, it is also argued that overall financial and operating performances of the privatized firms will be reflected in their values, and in turn, the stock prices of these firms.

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Concentrating on several countries: developed and developing, Dewenter and Malatesta (2001) examine the performance of 63 firms, which witnessed divestiture over the period of 1981 to 1993. Unlike other studies, they compare the performance over two intervals: short-run interval from –3 to –1 with +1 to +3 years and long-term interval by comparing –10 to –1 with +1 to +5 years. Even though the study documents a significant improvement in profitability, and a significant deterioration in leverage and labor intensity, it leaves some ambiguous argument about the role of privatization as the study, in the meantime, documents an increase in operating profits prior to divestiture. Moreover, most of the accounting measures of profitability are lower during the five years following privatization than those during the previous three years. Megginson, again with D’Souza, (1999) follows the same methodology of his earlier study with et al. (1994) for a sample of 85 firms that were privatized through public share offering from 1990 to 1996, but this time from 28 industrialized countries only. The results confirm the same findings for all proxies but not for employment, where an insignificant decline is shown. It is worthwhile mentioning here that empirical findings for large-scale countries have similar results even though they use different data sets (Megginson et al (1994), Boubakri and Cosset (1998) and D’Souza and Megginson (1999)). Taken as a whole, the empirical evidence of these studies suggests that privatization could lead to an improvement in profitability, efficiency, outputs, capital investment spending, and debt ratio. On the other hand, there is no consistent result with regard to the employment level. In contrast to the above-discussed results, Harper (2001) recently documents different findings for 178 Czech firms that were in the first wave of voucher privatization. He concludes that profitability and efficiency decreased immediately following privatization. However, it can be argued that no academic work has been undertaken to examine the same phenomenon in the Middle East Region; in turn, this research focuses on the newly privatized firms in such an emerging economy. Privatization is still underway in most of the countries in this Region, as privatization over the period from 1991 to 1998, averaged only about three percent of the total SOEs worldwide (Economic Research Forum (2000)). The Region is doing better than in the past with Egypt in the lead, but the rest of the world is moving faster. Egypt has made significant success in privatization compared with other countries in the Region. This success has been attributed to the ability of the Egyptian government to mobilize the support of key economic factors and to overcome the problems of excess labor, valuation, and the limited absorptive capacity of the capital market. Due to the fact that Egypt has a rather reasonable period of experience regarding privatization, this paper examines the impact of privatization on the performance changes of the newly privatized Egyptian firms, which would allow for an investigation into what extent Egypt’s experiment has built up a reputation for its government concerning the way in which privatization programs take place over time.

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III Data Set

As seen in Table II, the total number of privatized firms reached 184 firms in February 2001. However, excluding some types of privatization, namely: liquidations, asset sales and leases, this left only 111 firms. Since I need at least 2 years of both pre- and postprivatization data, firms that have been privatized after June 1998 are excluded since the financial year for SOEs ends on 30th June; so before that date I have 2 years post privatization data. Accordingly, the final sample comprises 76 firms: 35 firms have been sold as a majority in the stock market, 18 firms have been privatized partially, i.e., 40% to the private sector and 60% still in the government’s hand. Additionally, 13 firms have been sold to ESA, while the rest (10 firms) have been sold to anchor investors. I could not find any available data for 4 out of the10 anchor investor firms and one ESA firm. Furthermore, two majority firms witnessed mergers with other private firms after privatization. In turn, it would be appropriate to exclude them from the analysis. The sample size thus contains 69 privatized firms: 33 majority, 18 minority, 12 ESA and 6 anchor investors. The Public Sector Information Center was the source of data for firms prior to privatization, and the Egyptian Capital Market Authority provided data for those firms following privatization.

IV. Methodology and Empirical Model

The intention of this paper is to test whether privatized firms perform better after privatization. To achieve this goal, I consider many variables to allow for comparison between the pre-and the postprivatization performance. Since the objectives of any privatization program is to increase the ability of firms to achieve their goals, it is expected that privatization will increase profitability, operating efficiency, capital expenditure, and output. Moreover, privatization might affect the level of employment, leverage, and dividend policy. From the selected literature in Section III, in particular Megginson et al. (1994), Boubakri and Cosset (1998), and D’Souza and Megginson (1999), initial checklists of possible variables, together with hypothesized increases or decreases in key variables as predicted are given below: Profitability

Real net income (NI): (increase) Net profit after tax is deflated using the appropriate consumer price index (CPI) values taken from the IMF’s International Financial Statistics, and then deflated values are normalized to equal 1.00 in year 0 so other year figures are expressed as a fraction of net income of the year of privatization. Sales efficiency, net income efficiency, real capital expenditures, and real sales are computed similarly. Return on sales (ROS): (Increase) Refers to net profit after tax divided by sales. Return on assets (ROA): (Increase) Refers to net profit after tax divided by assets. Return on equity (ROE): (Increase) Refers to net profit after tax divided by equity. Operating Efficiency

Sales efficiency (SALEFF): (Increase) Refers to sales per employee. Net income efficiency (NIEFF): (Increase) Refers to net profit after tax per employee.

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Capital Expenditure:

Since firms do not point out figures for capital expenditure in their financial statements, I calculate this variable as the difference between fixed assets and projects under progress at the beginning and end of each year Real capital expenditure (CE): (Increase) This variable has been calculated using the normalized method after deflating the data for inflation. Capital expenditure to sales (CESA): (Increase) Refers to capital expenditure divided by sales. Capital expenditure to total assets (CETA): (Increase) Refers to capital expenditure divided by total assets. Output:

Real sales (SAL): (Increase) This variable has been calculated using normalized method after deflating sales for inflation. Employment:

Total employment (EMPL): (Decrease/Increase?) Refers to total number of employees.

Leverage:

Total debt to total assets (TDTA): (Decrease) Refers to total debt divided by total assets. Long term debt to Equity (LTDE): (Decrease) Refers to long term debt divided by equity. Dividends:

Dividends to sales (DIVSAL): (Increase) Refers to cash dividends divided by sales. Payout ratio (PAYOUT): (Increase) Refers to cash dividends divided by net profit after tax. Even though, all variables listed above have been examined in the literature, one might be interested to look at the financial risk of privatized firms. The financial risk would reflect the ability of the firm to meet its financial obligation, i.e., how many times the firm is able to cover its paid interest from its profit before tax and interest. Of course, since greater coverage reduces financial risk, an increase in this ratio is expected following privatization. In sum, the following variables will be considered: Risk

Inversed time interest earnings (ITEE): (Decrease) Refers to paid interest as a percentage of net profit before tax and interest. Originally, time interest earnings have to be calculated, but for calculation reason I replaced it by inverse time interest earnings1.

1 If the paid interest is zero, this means that the outcome of calculating time-interest earnings would yield infinite. Since the sample size contains many cases where paid interest is zero, it was sensible to consider the inverse ratio in order to avoid losing observations; hence, I calculate it by dividing paid interest by net profit before tax and interest.

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For each individual firm, I calculate the mean performance for each variable prior to and after privatization for each individual privatized firm as long as I have at least 2 observation windows prior to and after the privatization date, excluding the year of privatization; in turn, the minimum time interval data for each firm (69) is five years (from at least year –2 to year +2). It should be mentioned that I exclude the year of privatization (year 0) because it includes both the public and private ownership phases of the firm. Then I run the T test2 for the significant changes in means, the Wilcoxon signed-rank test to investigate for significant changes in medians, and lastly I use a proportion test to determine whether the proportion (P) of firms experiencing changes in a given direction is greater than what would be expected by chance, typically testing whether P = 0.5. Moreover, I classify privatized firms according to the type of privatization, which in turn yields different kinds of ownership structure according to the method of sale: majority (33), minority (18), ESA (12) and anchor investors (6); hence, I run the above-mentioned analysis for each sub-sample. However, one crucial issue one needs to understand is what type of new ownership structure yielded by the method of privatization has more significant change; so it is important to compare the performance of each sub-sample group. For this reason, I consider the following two ways to measure variables: 1- Normalization:

To test for the significant difference in performance among sub-samples, I have to adjust the data to allow for making such comparisons so as not to be misleading. One way to measure the postprivatization performance is to consider the privatization year (year 0) as the base year for each firm and then to calculate its postprivatization performance relative to this year by normalizing every figure of each individual variable to equal 1:00 in year 0, so other years figures are expressed as a fraction of the year of privatization. The benefit from this method is to make the postprivatization performance of all firms relative to their performance in the same year (the year 0 or the year of privatization); in turn, the comparison would reflect the real performance of firms relative to their performance at the year of divestiture. After completing this process, I employee the ANOVA test for the significant difference in means among the sub-samples, and I also perform the Kruskal-Wallis test for the significant difference in medians among the sub-samples. Even though the result from such analysis would allow us to understand whether there is a significant difference in performance among sub-samples, it could not tell us much more about which of the sub-samples performs significantly different compared with others. For that reason, I continue the analysis using the T test for the difference in means and the Mann-Whitney3 test for the difference in medians.

2 Any statistically significant difference between standard deviations of means prior to and after privatization will violate one of the important assumptions underlying the difference in means. In turn, I run a test for variance check, and when I perform the T test it produces results under two assumptions; one if equal variances are assumed and the other if equal variances are not assumed. I, however, chose the result, which is consistent with the previous findings of variances check. 3 Results reported for Mann-Whitney test are corrected for ties.

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2-Relative Performance Change:

By looking at the normalization method, one could understand that the assumption underlying this method is to consider the divestiture year as the benchmark to calculate the postprivatization performance. However, it is important to take into consideration the history of each firm’s performance by calculating the postprivatization performance relative to the preprivatization one. Accordingly, I calculate the relative performance change for each firm as follows:

1,1,, /)( −−−= tititi PPPRPC Where RPC = Relative Performance Change

tiP , = Mean performance postprivatization period

1, −tiP = Mean performance preprivatization period After calculating the RPC for each variable and each individual firm, I use the same statistical techniques mentioned in the normalization method. The following table summarizes the above-mentioned analyses:

Insert Table III near here

V. Empirical Findings and Analysis

In this section, I report the empirical findings of the statistical analysis for the performance changes in variables described in the previous section using the T test, the Wilcoxon signed-rank test, and the proportion test. The analysis considers the whole sample of 69 privatized firms (Table IV). I also discuss the results for partitioning of the data to determine whether the effect of privatization varies according to the type of privatization. In this sense, the performance of totally and partially privatized firms might differ as partial privatization might not be the best way for a government wishing to move away from reliance on state ownership (Boardman and Vining (1989)). For that reason, I present the performance change results for each sub-sample according to the type of privatization: majority, minority, ESA or anchor investors (Tables V to VIII). Moreover, I test the equality of performance changes for all type of privatization using the one way ANOVA and the Kruskal-Wallis tests; as well, I run the T test and Mann-Whitney test to find out whether each group of firms records significant changes in the values of variables compared with other groups. Also I report the test results of whether the performance change in any given type of privatization differs from that of others considered jointly. However, such comparison is performed based on the normalization method (Tables IX to XI) and the relative performance change method (Tables XII to XIV). Before moving to analyze the empirical results, one should bear in mind that given that the test for normality is rejected for most variable values, this would violate one of the important assumptions underlying the T test and the one way ANOVA test, and in such cases, results regarding the parametric test should be treated with caution. Even though I

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report both parametric and non-parametric results, in this discussion I will rely, mainly, on the latter4.

Insert Tables IV to XIV near here

A. Profitability

It is well documented theoretically and empirically that transferring the ownership from the public to private sector should lead to an increase in profitability, as private management would show a greater concern for profits compared to government. I measure profitability by several proxies: real net income (NI), return on sales (ROS), return on assets (ROA), and return on equity (ROE)5. From Table IV it can be seen clearly that all profitability ratios improve significantly after divestiture. For instance, the mean (median) NI, ROS, ROA, and ROE jump from 0.76 (0.7), 0.13 (0.08), 0.064 (0.06), and 0.26 (0.25) to 1.05 (0.97), 0.166 (0.11), 0.09 (0.08), and 0.33 (0.30); respectively. All statistical tests pass the critical values of significance at the 1 per cent level for most cases and at the 5 per cent level for two cases only. The increase in all profitability measures is equally significant in as low as 62 per cent and as high as 71 per cent of the sample firms. For sub-sample results (Tables V to VIII), it seems that all types of privatization witness improvements in profitability measures, but the significant change in performance prior to and after divestiture varies from one type to another. Firms with majority sold in the stock market show significant increase in NI and ROA where ROS and ROE show insignificant improvement after divestiture. With regard to minority firms, it could be concluded that all profitability ratios witness significant improvement, for example both the Wilcoxon and proportion tests were significant at different level for all ratios. The same conclusion is documented for anchor investor privatized firms, while ROA and ROE seem to be the only two significant ratios for ESA privatized firms. Even though, it appears that minority and anchor investor firms perform better compared with the other two types of privatization in terms of profitability measures, one could not confirm whether such difference in performance is significant or not. For that reason, I adjusted the data to consider the firm specific performance history using two methods mentioned in the previous section. I report equality of performance change results for all types of privatization in Table IX for the normalization method and Table XII for the relative performance change method. For

4 Barber and Lyon, among others (1996) document that non-parametric Wilcoxon test statistics are uniformly more powerful than parametric t-statistics. 5 On one hand, the net income might be affected by tax credits or carryforwards that do not relate to the current year’s performance; on other hand, the government might try to provide a brighter picture about firms’ profits prior to privatization by selling some assets and then reporting capital gains in income statements that would reflect an increase in net income but in an artificial way. Due to this reason, it is important to consider calculating the above profitability ratios using profit before taxes and extraordinary items to see whether there is a difference in measures. However, results are found to be similar using net profits or profits before taxes and extraordinary items. I do not report the statistical results here for the sake of space, but they are available from the author upon request.

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the normalization method, it is clear enough that there are significant differences amongst the four types of privatization for three out of four profitability ratios using the non-parametric test, and for two ratios using parametric test at the 5 and the 10 per cent level. As far as the second method is concerned, the test for equivalence in performance change could not be rejected for all profitability ratios apart from ROS at the 10 per cent level; however, it was important to perform another kind of tests to determine which type of privatization is performing significantly different from the others. In Tables X, and XI, where the normalization method is used, the results show that anchor investor privatized firms outperform majority privatized firms in two profitability ratios using parametric and non-parametric tests at the 5 per cent level, and outperform minority privatized firms in three and four profitability ratios based on parametric and non-parametric tests, respectively at the 5 and the 10 per cent level. In the meantime, ESA privatized firms outperform majority and minority privatized firms in two and three profitability ratios, respectively. However, no significant difference in performance has been documented for sub-samples majority-minority and ESA-anchor investors. Additionally, I extend the analysis by looking at whether the performance change in any given type of privatization is different from others considered jointly and find that the performance of the anchor investor privatized group is significantly larger compared with others for all ratios at the 5 and the 10 per cent level (non-parametric test). In the meantime, the ESA group’s performance is significantly larger compared with others for two ratios at the 5 per cent level. For the second method (Table XII and XIV), there is still some evidence that the anchor investor group still shows a significant difference in profitability ratios compared with the majority, minority, and other groups considered jointly. However, the ESA group shows better performance compared with others, but the statistical tests are not significant at any level. As seen from the above analysis, one could conclude that privatized firms, as a whole, show significant improvement in profitability after divestiture. Most important is that anchor investor privatized firms perform better compared with the other types of privatization followed by the ESA group performing next to the best, then the majority group, and lastly the minority group. One possible explanation for the difference in performance amongst the groups is that concentrating ownership in hands of a small group (anchor investors) would lead to better performance. Additionally, when ownership transfers to a similar group, who shares the same responsibility and objectives (ESA), they might work harder to achieve better results, where selling SOEs to majority firms might need time to create harmony in the management team and to get shareholders to talk the same language. While it might be expected that in partial privatization the government would still have a hand in controlling management, hence hindering their performance and making it poorer when compared with other types of privatization. B. Operating Efficiency

One important role of privatization is to achieve the best allocation of resources, whether financial, human, or technological, given that, operating efficiency is expected to improve

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after divestiture. To control for this dimension, I use two ratios: inflation-adjusted sales per employee (SALEFF) and inflation-adjusted net income per employee (NIEFF). As for SALEFF, the ratio shows a significant mean (median) increase following privatization at the 1 and the 10 per cent level, respectively, as mean (median) values increase from 0.93 (0.96) of the year 0 level during the preprivatization period to 1.09 (1.02) of the year 0 level during the postprivatization period. However, such an increase is achieved by only 51 per cent of the sample firms, which makes the proportion test insignificant. The NIEFF ratio witnesses a more significant increase compared with the SALEFF ratio as all tests were significant at the 1 per cent level, where mean (median) jumps from 0.73 (0.65) of the year 0 level during the preprivatization period to 1.13 (1.02) of the year 0 level during the postprivatization period, and this is achieved by 74 per cent of the sample firms. Given that the denominator for both ratios is the same (number of employees), an interesting point here is that the differences between performance changes in both ratios would be due to the success of new management in controlling and reducing expenses more than increasing revenues from sales as NIEFF grows more compared with SALEFF. All sub-samples demonstrate significant improvement in operating efficiency apart from the minority group where SALEFF decreased significantly after privatization at the 10 per cent level using the non-parametric test, and such a decrease is experienced by 72 per cent of the sample firms, and the proportion test is significant at the 5 per cent level but in a different direction. However, using sub-samples comparison, tests indicate that not all sub-samples experience identical performance. Again, I document that the anchor investor privatized firm group performs better compared with other types of privatization, in particular minority and majority, which is significant for both normalization and relative performance change methods. Moreover, the ESA privatized firm group comes second in terms of performance, and this was significant in some cases. It is also well observed that the minority privatized firm group has the worst performance compared with others. Taking together profitability and operating efficiency as they represent most economic benefits from privatization, it might be understandable that concentrating ownership in the hands of a small group such as anchor investors would yield higher and better performance, but the most surprising results is that the ESA privatized firm group seems to outperform other types of privatization excluding anchor investors. In this context, this result seems to be consistent with Boubakri and Cosset’s (1998) proposition that employee stock ownership plans (ESOPs) favor employees’ support for the privatization policy and performance improvements. Through their empirical findings, they show that firms sponsoring ESOPs witness significantly larger increases in profitability and operating efficiency compared with non-ESOP firms. In fact, such results contrast the argument made by Boycko, Shleifer and Vishny (1996) who predicts that workers make poor stockholders/monitors.

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C. Capital Expenditure

As privatization is takes place for SOEs, it is expected that new management would have greater access to private debt and equity markets; hence, they will have more incentive to increase the level of capital expenditure aiming at growth and expansion, in particular, when the economic climate is moving in a positive direction following stabilization and structural adjustment in developing countries. I compute investment intensity using three proxies: real capital expenditure (CE), capital expenditure divided by sales (CESA), and capital expenditure divided by total assets (CATA). Using both parametric and non-parametric tests at different levels, I document a significant increase in CE, CESA, and CETA; this increases averages 59% in all sample firms for all variables. The post-divestiture increase in capital expenditure is highly significant for the ESA privatized firm group for all three variables and at the 1 per cent level for nearly all tests. In contrast, none of these variables is significant for the minority and anchor investor privatized firm groups, whereas the majority group shows significant increases for CESA and CETA, but not for CE. On the other hand, I document different results after adjusting the data to make it comparable across sub-samples. In the normalization method, minority and ESA privatized firm groups show significantly larger increases in capital expenditure compared with the majority privatized firm group, but such an increase is not significant when compared with the anchor investor privatized firm group. Moreover, the minority group indicates a significantly different increase compared with other groups considered jointly for all capital expenditure variables at the 10 per cent level based on parametric and non-parametric tests, whereas the majority group shows a significant underperformance compared with other groups considered jointly at the 5 and the 10 per cent level, but for the non-parametric test only. Again, with the second method, the ESA privatized firm group shows a significantly different increase in all capital expenditure variables compared with other types of privatization considered jointly at the 1 per cent level, whereas the majority privatized firm group seems to have the lowest increase in capital expenditure compared with others. Considering the results of the whole sample, one could argue that privatization is important to encourage management to target new business and expand their investment activities. As it is confirmed in the above discussion, privatization leads to an improvement in profitability, operating efficiency, and an increase in capital expenditure; it is also argued that privatization will also increase output. I examine this proposition by computing the average-inflation adjusted sales level for the pre and postprivatization period as a proxy for output. Surprisingly, all tests: parametric, non-parametric, and proportion show insignificant decreases in output, which tends to contrast the expectation of an increase in output following privatization. However, this result seems to be consistent with Boycko et al’s (1996) argument that effective privatization will lead to a reduction in output since the government can no longer entice management (through subsidies) to maintain inefficiently high output levels. A remarkable point here is that the significant increase I document in SALEFF is entirely due to the reduction in the level of employment rather than an increase in sales. Extending the analysis to sub-samples, an insignificant change is shown for

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majority and anchor investor privatized firm groups, while a significant decrease in output is documented for the minority privatized group at the10 per cent level using the Wilcoxon signed-rank test, which is consistence with the previous findings that SAEFF is decreased significantly for this group of firms. Additionally, the ESA privatized group is the only group, which shows a significant increase in output using all type of tests at the10 per cent level. The results from sub-sample comparison, using normalization and relative performance change methods, confirm the same findings as the Mann-Whitney test-- that the ESA privatized firm group performs better compared with all other type of privatization considered jointly at the 10 per cent level. In the meantime, this group shows a significantly larger increase in output compared with the minority group at the 5 per cent level for both methods using the Mann-Whitney test. An important observation here is that ESA privatized firms still lead other types of privatization, particularly, majority and minority privatized firms in all major proxies: profitability, operating efficiency, capital expenditure, and output. However, such interesting findings would open a window of debate to consider workers as good managers when they control their own businesses. E. Employment

Employment is an important and critical issue in privatization because of the possibility that such a program would lead to cutting the current level of employment. There is neither a theoretical nor empirical consensus with regard to the impact of privatization on the level of employment. One could argue that privatization will increase the level of employment as far as privatized firms will target growth and expand their investment spending; in turn, they will be able to produce more job vacancies. On the other hand, it is confirmed that most SOEs tend to be over-staffed as one objective of establishing the public sector is to create as many employment opportunities as possible. In this sense, extensive layoffs are expected to take place because of the style of new management since social aspects will not be considered in favor of business objectives. I test for this variable by computing the average level of employment prior to and postprivatization period. I find that employment decreases from mean (median) 3112 (2520) employees before privatization to 2919 (1952) after privatization. This significant decrease (at the 1 per cent level for all tests) is achieved by 72 per cent of the sample firms. When looking at the performance of sub-samples, I observe that majority and anchor investor privatized firm groups witness significant decreases at the 1 per cent and at the 10 per cent level, respectively. In contrast, minority and ESA groups show insignificant decreases. As for results from comparing sub-samples, the level of employment in the majority privatized group shows a significantly larger decline compared with the minority group and with all other types of privatization considered jointly at the 1 per cent level for most cases using the Mann-Whitney test, which is valid for normalization and relative performance change methods. Contrary, the level of employment in minority privatized firms shows a significantly smaller decline compared with all types of privatization considered jointly at the 1 per cent level using both methods and both parametric and non-parametric tests.

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It might be logical that the ESA privatized firm group does not witness a significant decrease in the level of employment due to the fact that ownership is transferred to employees themselves, but it is quite interesting to note that partial privatization does not affect the level of employment. One possible explanation is that the government would like to spread a message to new management in fully privatized firms to keep up the level of employment or to show the public that it is still considering some social aspects in its privatization policy. F. Leverage

In fact, the change from public to private sector might change the capital structure of a firm, as the cost of debt will be more comparable with the previous situation as the public sector was used to having debt at a lower rate. In the meantime, firms will have more opportunities to access equity markets, domestically and internationally (see Bradley, Jarrel, and Kim 1984); hence one might expect that debt ratios would decline after privatization. I test for this proposition by computing two ratios: total debt to total assets (TDTA) and long-term debt to equity (LTDE). I document a significant decline in TDTA at the 10 per cent level and at the 1 per cent level for LTDE. The means (medians) of TDTA and LTDE drop from 0.23(0.21) and 0.76 (0.35), respectively, to 0.19 (0.15) and 0.37 (0.19) for both variables, respectively. Fifty-eight and 67 per cent of the sample firms achieves this change in capital structure, in terms of TDAT and LTDE, respectively. The significant change in leverage ratios is documented for the minority-privatized group for all three tests, while majority and ESA groups witness significant decline in LTDE only6. In contrast, anchor investor firms do not show significant change in their capital structure. Comparing sub-samples, by using the normalization method, shows that the value changes in TDTA is significantly smaller for the majority group than the minority group and other groups considered jointly at the 5 per cent and the 10 per cent level, respectively in the Mann-Whitney test, whereas the minority group witnesses a significantly larger decline in TDTA compared with the majority group and other sub-samples considered jointly at the same level mentioned above. In contrast, no significant difference among the sub-samples is documented for LTDE. Utilizing the second method, the analysis yields different results, as no significant difference among sub-samples is shown for TDTA; however, a significant difference is documented for LTDE. In this sense, majority and anchor investor groups indicate significantly larger declines compared with minority and ESA groups as well as with other groups considered jointly. Moreover, the minority group has the smallest decline in LTDE compared with other groups considered jointly at the 5 per cent level.

6 The difference between TDTA and LTDE as accounting measures might explain why the latter ratio seems to be more significant. As total assets would be affected by any increase in equity--given other variables are constant--hence, dividing total debt by total assets prior to and after increasing equity will yield a lower decline compared with dividing part of the debt (long term debt) by equity prior to and after increasing the capital.

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G. Dividends

Megginson et al. (1994) point out that no theoretical or political argument deals with the issuance of dividends, but it might be argued that payouts will increase because, unlike the state, private investors generally demand dividends; hence, an increase in dividends payouts is expected following privatization due to change in ownership structure. I consider total dividend payments divided by sales (DIVSAL) and dividends divided by net income (PAYOUT) to measure the change in dividend policy7. Both ratios reveal a very significant increase after privatization at the 1 per cent level using the T test, the Wilcoxon test, and the proportion test. The means (medians) DDIVSAL and PAYOUT jump from 0.07 (0.04) and 0.43 (0.15) to 0.12 (0.07) and 0.67 (0.66), respectively. Seventy-three and 78 per cent of the sample firms achieve such significant positive changes for DIVSAL and PAYOUT, respectively. As far as sub-sample performance is concerned, I will rely on majority and minority groups only8. I document a strong increase in both ratios for both groups at the 1 per cent level for the majority group and at the 1 per cent level for the minority group for most statistical tests. However, no significant difference between groups is shown for both methods at any level. H. Risk

Financial risk reflects the ability of firms to face their financial obligation; hence, as firms move from public to private ownership, their ability to manage debt issues should occur in a more efficient manner. Essentially, firms would target debts if they were able to cover their interest and to achieve some profits from using such debts. Given this proposition, one might expect an increase in the capability of firms to cover their paid interest following privatization. However, as mentioned in Section III, for calculation reasons, I compute the inverse time interest earnings as a proxy for financial risk, which reflects how much paid interest as a percentage of net profit before tax and interest; therefore a decrease is expected in this ratio for firms following privatization. I document a significant decrease at the 10 per cent and the 5 per cent level for parametric and non-parametric test, respectively. The mean (median) declines from 0.4 (0.17) prior to privatization to 0.21 (0.10) in the postprivatization period. Such a decline is achieved by 61 per cent of the sample firms, which makes the proportion test significant at the 5 per cent level. As for sub-samples, this significant decline no longer exists for ESA and anchor investor groups, while it is significant for majority and minority groups. After adjusting the data to

7 Because some firms do not distribute dividends prior to privatizations due to the fact that they do not achieve profits, I exclude these cases from the analysis. 8 Even though I report the results of the statistical test for the ESA and anchor investor groups, the number of observations is too small to allow for such kinds of comparison. However, excluding these two groups is based on the fact that there are some missing data about dividends after privatization, in particular the anchor investor group as they do not report such important financial data to the capital market authority in Egypt, or because some firms witness losses prior to privatization do not pay dividends, of course; so the comparison would be meaningless and misleading if I included these cases in the analysis.

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allow for sub-sample comparison, the result shows that there is no significant difference in value changes of this ratio among sub-samples at any level.

VI Conclusions

The paper sheds lights on the impact of privatization upon the performance change of 69 privatized Egyptian firms during the period from 1994 to 1998. I follow the same methodology adopted by Megginson et al. (1994), Boubakri and Cosset (1998) and D’Souza and Megginson (1999) and use them as benchmarks to allow comparison of my empirical findings with theirs. I document significant increases in profitability, operating efficiency, capital expenditure, and dividends. Such findings seem to be consistent with those documented by benchmark studies. I also present similar findings with regard to leverage as it declines significantly following privatization. In contrast to benchmark studies, I find an insignificant change in output to the extent that this variable decreases insignificantly following privatization. However, this could be due to the fact that prior to privatization, firms would have huge inventories, so new management might concentrate, primarily, on marketing activities in favor of production activities; and since the quality of SOE products, in general, are less than private competitors, it would be logical to observe an insignificant change in this variable; but an important caveat to this finding is that a longer postprivatization period may have perhaps provided different implications. As far as the level of employment is concerned, I document a highly significant decrease following privatization, which again contrasts Megginson et al. (1994) and Boubakri and Cosset (1998) but to some extent seems to be similar to the empirical finding by D’Souza and Megginson (1999), who document an insignificant decrease in the level of employment. Additionally, a significant decrease is shown for the financial risk following privatization. Based on the way the government implements its privatization program, I classify the sample firms into four groups: majority, minority, ESA, and anchor investors. Because each group of firms sold to different entities, which results in each having a new and different ownership structure, it is important to examine the performance of each group individually and then test for differences in performance among them following privatization. My sub-samples indicate that the performance change in all variables mentioned previously for all sub-samples are pervasive. However, it is worthwhile addressing some abnormal results. Firstly, I document a significant decrease in SALEFF and output for the minority group, while the whole sample shows a significant increase in the first variable and an insignificant decrease in the latter one. Secondly, ESA firms are the only ones to witness a significant increase in output, and lastly, minority firms are the only ones to show an insignificant decrease in employment level following privatization. After adjusting the data to allow for sub-sample comparison, I document a significant difference in performance between the ESA firm group and others- in particular the majority and minority firms- for most major variables such as profitability, operating efficiency, and output. Moreover, the anchor investor group seems to be similar in performance to the ESA firm group as it outperforms both other groups considered jointly or individually (majority and minority).

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Taken all these results as a whole, the evidence suggests that the full sample as well as sub-samples show significant improvement following privatization. Additionally, in any event, the level of performance differs according to the type of new ownership structure, but the most significant and important observation is that partial privatization is not working as well as full privatization. And in this sense, it might be recommended that government should leave the business sector in private hands and target full privatization in favor of partial privatization. Furthermore, selling an SOE to an ESA tends to have greater positive implications on a firm's performance; hence, we have to re-think again about the performance of workers when they manage their own businesses. Lastly, my paper, along with most academic research studies in privatization, documents significant improvement in performance for firms following privatization statistically and economically. However, such performance might be questioned with regard to SOEs’ performance. In other words, since most privatization programs in developing economies have taken place as a part of economic reform and structural adjustment policies, this has resulted in a new economic environment; in turn, this might affect the performance of all firms, private or public, in a positive way. So the concern here is what would happen if these firms were left in the hands of government. Would the performance change, and if so, in which direction? If we could match each privatized firm with an SOE based on size and industry for the same period, we could adjust the performance of privatized firms by taking away any change in performance not attributed to the privatization process itself. Indeed, additional evidence- after taking into consideration the performance of SOEs, given that privatization in many countries is still underway- is needed before the results can be interpreted more conclusively.

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Levigne, M., (1995), The Economic of Transition: from Socialist Economy to Market Economy, (London: Macmillan Press Ltd.). Levis, M., (1993), "The Long-Run Performance Of Initial Public Offerings: The UK Experience 1980-1988", Financial Management, 22 (1), 28-41. Letwin, O., (1988), Privatizing the World, (Great Britain: Cassek Education Ltd.). Lieberman, I., (1994), "Privatization in Latin America and Eastern Europe in the Context of Political and Economic Reform", World Economy, 17 (4), 551-75. Liu, Z., (1995), "The Comparative Performance of Public and Private Enterprises: The Case of British Ports", Transport Economics and Policy, 29 (3), 263-74. Loughran, T., Ritter, J.R., and Rydqvist, K (1994), "Initial Public Offerings: International Insights", Pacific-Basin Finance Journal, 2, 165-99. Martin, S., and Parker, D., (1995), "privatization and Economic Performance Throughout the UK Business Cycle", Managerial and Decision Economics, 16, 225-37. McKinney, B. M., (1996), "Recent Development in Egyptian Investment Policies and Programs, and Pending Reform Legislation" Middle East Executive Reports, 19 (7), 9-12. Megginson, W., Nash, R.C., and Randenborgh, M., (1994), “The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis”, Journal of Finance, 49 (2), 403-52. ., ., Netter, J., and Schwartz, A.L., (2000), "The long-Run Return to Investors in Share Issue Privatization", Financial Management, 29 (1), 67-77. Paudyal, K., Saadouni, B., and Briston, R.J., (1998), "Privatization Initial Public Offerings in Malaysia: Initial Premium and Long-Term Performance", Pacific-Basin Finance Journal, 6, 427-51. Peacock, A., (1984), "Privatization in Perspective", Three Banks Review, December 3-25. Perotti, E., and Guney, S., (1993), "Successful Privatization Plans: Enhanced Credibility Through Timing and Pricing of Sales", Financial Management, 22 (1), 84-98. Pirie, M., (1985), "Privatization Benefits Everyone", Institute of Public Affairs Review, Summer. Plane, P., (1997), "Privatization and Economic Growth: An Empirical Investigation from a Sample of Developing Market Economies", Applied Economics, 29 (2), 161-78. Ramamurti, R., (1997), "Testing the Limits of Privatization: Argentine Railroads", World Development, 25, 1973-93. Ritter, J., (1991), "The Long-Run Performance of Initial Public Offerings", Journal of Finance, 46 (1), 3-27. Roads, S., (1997), Investing in Egypt, (London: Committee for Middle East Trade, June). Roche, D., (1996), "It Depends what you Mean by Privatization", Euromoney, 26-27. Shackleton, J., (1984), "Privatization: The Case Examined", National Westminster Bank Quarterly Review, May, 59-73. Stevens, B., (1992), "Prospects of Privatization in OECD Countries", National Westminster Bank Quarterly Review, August 2-22. The Egyptian Cabinet Information and Decision Support Center, Monthly Economic Bulletin, (Cairo: IDSC, Various Issues, 1992-2001). The Egyptian Ministry of Public Enterprise Sector, (1998), Privatization Program performance from the start to February 2001, (Cairo: MPES). Timewell, S., "Egypt: It is Time to Start Letting Go", (1991), Banker, 141 (758), 47-48. Yarrow, G., (1986), "Privatization in Theory and Practice", Economic Policy, 1 (2), 323-78.

26

Youssef, S., M., (1996), "Structural Reform Program of Egyptian State-Owned Enterprises: Current Impact and Future Prospects", Journal of Management Development, 15 (5), 88-100.

27

Table I Some Economic Indicators under the Economic Reform Program Period

Description 1990/1991 1999/2000

Total external debt (Billions of US$) 49.2 26.6

Total external debt as a percentage of GDP 151% 34.5%

Real interest rates (6%) 5.7%

Inflation rate 21.2% 3.6%

Total foreign reserve (Billions of US$) 3.6 15.1

Budget deficit as a percentage of GDP 18.2% 0.3%

Real GDP growth rate 3.6% 5.2%

Per capita income (US$) 600 1405

Source: - Central Bank of Egypt, The Egyptian Cabinet Information and Decision Support Center (Cairo: CBE and IDSC, Various issues, 1992-2001).

28

Table II Number of Privatized Firms in Egypt

Year

Majority Privatization (more than 50%) Partially Privatization (less than 50%) Yearly Total

Anchor Investor

Majority IPO*

ESA Liquidation Minority IPO*

Asset Sales

Leases

Number Value**

1990 – – – 1 – – - 1 n.a. 1991 – – – 3 – – – 3 n.a. 1992 – – – 1 – – – 1 n.a. 1993 – – – 6 – – – 6 n.a. 1994 3 - 7 2 2 – – 14 664 1995 1 1 3 2 7 – – 14 1215 1996 3 13 – 1 6 1 - 24 2791 1997 3 14 3 3 2 1 2 28 3396 1998 2 8 12 6 1 3 - 32 2361 1999 8 – 5 7 – 2 6 28 2784 2000 5 1 0 3 0 6 10 25 2476 Until Feb.2001 1 0 0 2 – 3 2 8 n.a. Total 26 37 30 37 18 16 20 184 15687

Source: - The Egyptian Ministry of Public Enterprise Sector, Privatization Program Performance from the start to 24-5-1998, Unpublished Report, (Cairo: MPES, 2001). * Initial Public Offering **Million of Egyptian pound (Current rate 1 L.E.=0.26 US$)

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Table III Analysis Summary of the Empirical Analysis

Purpose Measurement Statistical Technique Sample Significant change in privatized firms

- Calculating the mean performance prior to and after privatization for each individual privatized firm

- T test for the significant change in means - Wilcoxon signed-rank test to investigate for significant change in medians, - Proportion test to determine whether the proportion of firms experiencing change in a given direction is greater than what would be expected by chance.

- All privatized firms (69). - Majority (33) - Minority (18) - ESA (12) - Anchor investor (6)

Sub-sample comparison

1- Normalization - ANOVA for the significant difference in means among sub-samples - Kruskal-Wallis test for the significant difference in medians among sub-samples. - T test for the significant difference in means between each pair of samples - Mann-Whitney test for the significant difference in medians between each pair of samples

For ANOVA and - Kruskal-Wallis tests: - Majority, Minority, ESA and Anchor investor (all together) For T and Mann-Whitney tests: - Majority compared with Minority - Majority compared with ESA. - Majority compared with Anchor investor. - Minority compared with ESA - Minority compared with Anchor investor - ESA compared with Anchor - Majority compared with the rest - Minority compared with the rest - ESA compared with the rest - Anchor investor compared with the rest.

Sub-sample comparison

2- Relative Performance Change

The same above-mentioned techniques.

The same above-mentioned sub-samples classification

Table IV Test for Significance Change in Performance for the Whole Sample (69 Firms)

The table shows results for the whole sample. I employ several techniques to test for the significant changes in performance of privatized firms. For the parametric test, the T test is used to test for significant difference between means for the pre- and postprivatization period. I provide the mean values of each variable for the pre and postprivatization period, the mean change for each variable after versus before privatization, and T statistics with its P-value. The Wilcoxon signed-rank test is employed to test for the significant change in median values. I provide median values of each variable for the pre- and postprivatization period with the median change for each variable after versus before privatization, and Z statistics with its P-value. The proportion test is employed to determine whether the proportion of firms experiencing changes in a given direction is greater than what would be expected by chance. The number of useable firms is provided with the number of firms that witness an increase or decrease after privatization. I also provide the percentage of firms that changed as predicted with Z statistics and its P-value. For all tests, I list the results under the null hypothesis that mean (median) = 0.0 and the alternative hypothesis is that mean (median) is greater than 0.0, and this is valid for all variables except for employment, leverage, and inversed time interest earnings where the null hypothesis is that mean (median) = 0.0, and the alternative hypothesis is that mean (median) is less than 0.0. T-Statistic Z-Statistic Percentage Z-Statistic for No. Firms Mean Mean Mean for Difference for Difference of Firms that Significance "Increased" Before After Change in Mean in Median Changes as of Proportion Variables (Decreased) (Median) (Median) (Median) (P-Value) (P-Value) Predicted (P-Value) Profitability Real net income (NI) 69 0.758 1.046 0.288 3.02 3.181 0.695 3.13 "48" (0.689) (0.974) (0.223) (0.0018) (0.0007) (0.0009) (21) Return on sales (ROS) 69 0.134 0.166 0.032 1.68 2.2 0.67 2.648 "46" (0.08) (0.111) (0.026) (0.0488) (0.014) (0.004) (23) Return on assets (ROA) 69 0.0639 0.0923 0.0284 3.913 3.767 0.71 3.371 "49" (0.06) (0.0812) (0.022) (0.0001) (0.0001) (0.0004) (20) Return on equity (ROE) 66 0.26 0.328 0.068 2.486 2.466 0.62 1.846 "41" (0.254) (0.302) (0.053) (0.0077) (0.007) (0.032) (25) Operating Efficiency Sales efficiency (SALEFF) 69 0.925 1.086 0.161 2.51 1.507 0.51 0.00 35 (0.961) (1.019) (0.001) (0.007) (0.066) (0.50) (34) Net income efficiency (NIEFF) 69 0.728 1.134 0.406 4.087 3.946 0.74 3.852 "51" (0.651) (1.022) (0.295) (0.0001) (0.0000) (0.0001) (18) Capital Expenditure Real capital expenditure (CE) 60 2.067 7.449 5.382 2.288 1.91 0.58 1.162 "35" (1.125) (1.14) (0.215) (0.013) (0.028) (0.12) (25) Capital expenditure to sales (CESA) 69 0.0176 0.12 0.1024 2.825 2.918 0.59 1.445 "41" (0.0295) (0.0314) (0.021) (0.003) (0.0018) (0.074) (28)

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Table IV-Continued T-Statistic Z-Statistic Percentage Z-Statistic for No. Firms Mean Mean Mean for Difference for Difference of Firms that Significance "Increased" Before After Change in Mean in Median Changes as of Proportion Variables (Decreased) (Median) (Median) (Median) (P-Value) (P-Value) Predicted (P-Value) Capital expenditure to total assets (CETA) 69 0.0267 0.0445 0.0178 2.332 2.374 0.59 1.445 "41" (0.0235) (0.0276) (0.0065) (0.011) (0.0088) (0.074) (28) Output Real sales (SAL) 69 0.969 0.979 0.01 0.206 0.0598 0.48 0.241 "33" (0.996) (0.98) (-0.02) (0.42) (0.48) (0.60) (36) Employment Total employment (EMPL) 69 3112 2919 -193 -2.974 3.958 0.72 3.759 "18" (2520) (1952) (-108) (0.002) (0.0000) (0.0001) (50) Leverage Total debt to total assets (TDTA) 69 0.229 0.194 -0.035 -1.598 1.393 0.58 1.736 "25" (0.207) (0.147) (-0.023) (0.057) (0.082) (0.04) (40) Long term debt to Equity (LTDE) 66 0.764 0.37 -0.394 -3.62 3.987 0.67 3.974 "13" (0.35) (0.188) (-0.144) (0.0003) (0.0000) (0.0000) (44) Dividends Dividends to sales (DIVSAL) 59 0.0712 0.122 0.0508 2.775 3.23 0.73 3.385 "43" (0.0392) (0.0681) (0.0286) (0.0037) (0.0006) (0.0004) (16) Payout ratio (PAYOUT) 59 0.43 0.668 0.238 3.784 3.997 0.78 4.166 "46" (0.1458) (0.658) (0.20) (0.00024) (0.0000) (0.0000) (13) Risk Inversed time interest earnings (ITEE) 69 0.4 0.206 -0.194 -1.582 2.117 0.61 2.233 "23" (0.166) (0.103) (-0.057) (0.059) (0.017) (0.013) (42)

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Table V Test for Significance Change in Performance for Majority Privatized Firms (33 Firms)

The table shows results for majority privatized firms. I employ several techniques to test for the significant changes in performance of privatized firms. For the parametric test, the T test is used to test for significant difference between means for the pre- and postprivatization period. I provide the mean values of each variable for the pre and postprivatization period, the mean change for each variable after versus before privatization, and T statistics with its P-value. The Wilcoxon signed-rank test is employed to test for the significant change in median values. I provide median values of each variable for the pre- and postprivatization period with the median change for each variable after versus before privatization, and Z statistics with its P-value. The proportion test is employed to determine whether the proportion of firms experiencing changes in a given direction is greater than what would be expected by chance. The number of useable firms is provided with the number of firms that witness an increase or decrease after privatization. I also provide the percentage of firms that changed as predicted with Z statistics and its P-value. For all tests, I list the results under the null hypothesis that mean (median) = 0.0 and the alternative hypothesis is that mean (median) is greater than 0.0, and this is valid for all variables except for employment, leverage, and inversed time interest earnings where the null hypothesis is that mean (median) = 0.0, and the alternative hypothesis is that mean (median) is less than 0.0. T-Statistic Z-Statistic Percentage Z-Statistic for No. Firms Mean Mean Mean for Difference for Difference of Firms that Significance "Increased" Before After Change in Mean in Median Changes as of Proportion Variables (Decreased) (Median) (Median) (Median) (P-Value) (P-Value) Predicted (P-Value) Profitability Real net income (NI) 33 0.73 1.00 0.27 1.74 1.769 0.61 1.044 "20" (0.679) (0.926) (0.218) (0.046) (0.038) (0.148) (13) Return on sales (ROS) 33 0.152 0.167 0.015 0.53 0.43 0.55 0.35 "18" (0.080) (0.106) (0.006) (0.30) (0.33) (0.364) (15) Return on assets (ROA) 33 0.068 0.085 0.017 1.58 1.644 0.61 1.044 "20" (0.059) (0.079) (0.02) (0.062) (0.050) (0.148) (13) Return on equity (ROE) 31 0.268 0.304 0.036 0.79 0.813 0.55 0.718 "18" (0.253) (0.269) (0.02) (0.218) (0.208) (0.236) (13) Operating Efficiency Sales efficiency (SALEFF) 33 0.89 1.11 0.22 1.876 1.286 0.55 0.35 "18" (0.951) (1.03) (0.001) (0.035) (0.099) (0.364) (15) Net income efficiency (NIEFF) 33 0.695 1.099 0.404 2.468 2.34 0.70 2.089 "23" (0.651) (1.02) (0.273) (0.0096) (0.0096) (0.018) (10) Capital Expenditure Real capital expenditure (CE) 28 -0.53 4.71 5.24 1.88 1.22 0.45 0.189 "15" (0.857) (0.665) (0.11) (0.035) (0.112) (0.425) (13) Capital expenditure to sales (CESA) 33 -0.022 0.059 0.081 2.287 1.84 0.55 0.35 "18" (0.021) (0.017) (0.008) (0.014) (0.033) (0.364) (15)

33

Table V-Continued T-Statistic Z-Statistic Percentage Z-Statistic for No. Firms Mean Mean Mean for Difference for Difference of Firms that Significance "Increased" Before After Change in Mean in Median Changes as of Proportion Variables (Decreased) (Median) (Median) (Median) (P-Value) (P-Value) Predicted (P-Value) Capital expenditure to total assets (CETA) 33 0.014 0.029 0.015 1.856 1.412 0.55 0.35 "18" (0.017) (0.014) (0.003) (0.036) (0.079) (0.364) (15) Output Real sales (SAL) 33 0.94 0.938 -0.002 -0.035 -0.268 0.55 0.35 "18" (1.00) (0.936) (-0.068) (0.514) (0.606) (0.364) (15) Employment Total employment (EMPL) 33 2660 2393 -267 -3.88 3.645 0.82 3.48 "6" (1967) (1751) (-172) (0.0002) (0.0001) (0.0002) (27) Leverage Total debt to total assets (TDTA) 33 0.251 0.229 -0.022 -0.686 0.661 0.58 0.884 "13" (0.24) (0.151) (-0.022) (0.249) (0.254) (0.188) (19) Long term debt to Equity (LTDE) 31 0.718 0.225 -0.49 -2.669 3.13 0.71 3.079 "5" (0.227) 0.049 (-0.13) (0.006) (0.001) (0.001) (22) Dividends Dividends to sales (DIVSAL) 33 0.071 0.127 0.056 2.39 2.66 0.73 2.44 "24" (0.038) (0.069) (0.03) (0.011) (0.004) (0.007) (9) Payout ratio (PAYOUT) 33 0.418 0.668 0.25 3.09 3.198 0.79 3.13 "26" (0.458) (0.65) (0.176) (0.002) (0.0007) (0.0009) (7) Risk Inversed time interest earnings (ITEE) 33 0.369 0.236 -0.133 -1.672 1.662 0.64 1.59 "11" (0.17) (0.126) (-0.06) (0.052) (0.048) (0.0558) (21)

34

Table VI Test for Significance Change in Performance for Minority Privatized Firms (18 Firms)

The table shows results for minority privatized firms. I employ several techniques to test for the significant changes in performance of privatized firms. For the parametric test, the T test is used to test for significant difference between means for the pre- and postprivatization period. I provide the mean values of each variable for the pre and postprivatization period, the mean change for each variable after versus before privatization, and T statistics with its P-value. The Wilcoxon signed-rank test is employed to test for the significant change in median values. I provide median values of each variable for the pre- and postprivatization period with the median change for each variable after versus before privatization, and Z statistics with its P-value. The proportion test is employed to determine whether the proportion of firms experiencing changes in a given direction is greater than what would be expected by chance. The number of useable firms is provided with the number of firms that witness an increase or decrease after privatization. I also provide the percentage of firms that changed as predicted with Z statistics and its P-value. For all tests, I list the results under the null hypothesis that mean (median) = 0.0 and the alternative hypothesis is that mean (median) is greater than 0.0, and this is valid for all variables except for employment, leverage, and inversed time interest earnings where the null hypothesis is that mean (median) = 0.0, and the alternative hypothesis is that mean (median) is less than 0.0. T-Statistic Z-Statistic Percentage Z-Statistic for No. Firms Mean Mean Mean for Difference for Difference of Firms that Significance "Increased" Before After Change in Mean in Median Changes as of Proportion Variables (Decreased) (Median) (Median) (Median) (P-Value) (P-Value) Predicted (P-Value) Profitability Real net income (NI) 18 0.737 0.895 0.158 1.21 2.13 0.83 2.59 "15" (0.683) (0.953) (0.182) (0.12) (0.016) (0.0048) (3) Return on sales (ROS) 18 0.142 0.157 0.015 0.496 1.61 0.83 2.59 "15" (0.089) (0.100 (0.021) (0.313) (0.0536) (0.0048) (3) Return on assets (ROA) 18 0.07 0.109 0.039 2.63 2.308 0.72 1.65 "13" (0.068) (0.092) (0.03) (0.009) (0.01) (0.0495) (5) Return on equity (ROE) 17 0.296 0.41 0.115 1.89 1.467 0.71 1.455 "12" (0.274) (0.327) (0.07) (0.0385) (0.071) (0.073) (5) Operating Efficiency Sales efficiency (SALEFF) 18 1.00 0.956 -0.44 -0.68 -1.437 0.72 1.65 "5" (1.01) (0.968) (-0.08) (0.747) (0.925)* (0.951)* (13) Net income efficiency (NIEFF) 18 0.741 0.913 0.172 1.322 1.916 0.72 1.65 "13" (0.624) (0.972) (0.165) (0.102) (0.028) (0.0495) (5) Capital Expenditure Real capital expenditure (CE) 16 6.94 16.75 9.81 1.23 -0.388 0.38 0.75 "6" (1.47) (1.72) (-0.84) (0.119) (0.651) (0.773) (10) Capital expenditure to sales (CESA) 18 0.06 0.13 0.07 0.973 0.00 0.44 0.236 "8" (0.034) (0.036) (-0.011) (0.172) (0.50) (0.593) (10)

35

Table VI-Continued T-Statistic Z-Statistic Percentage Z-Statistic for No. Firms Mean Mean Mean for Difference for Difference of Firms that Significance "Increased" Before After Change in Mean in Median Changes as of Proportion Variables (Decreased) (Median) (Median) (Median) (P-Value) (P-Value) Predicted (P-Value) Capital expenditure to total assets (CETA) 18 0.053 0.055 0.002 0.08 -0.13 0.44 0.236 "8" (0.039) (0.036) (-0.011) (0.469) (0.552) (0.593) (10) Output Real sales (SAL) 18 0.989 0.94 -0.05 -0.757 -1.307 0.39 0.707 "7" (1.02) (0.95) (-0.074) (0.77) (0.904)* (0.76) (11) Employment Total employment (EMPL) 18 4544 (4604) 60 0.39 0.871 0.61 0.97 "6" (3930) (3612) (-74) (0.649) (0.192) (0.166) (11) Leverage Total debt to total assets (TDTA) 18 0.27 0.156 -0.114 -2.00 2.00 0.78 2.12 "4" (0.214) (0.11) (-0.087) (0.031) (0.023) (0.017) (14) Long term debt to Equity (LTDE) 17 0.877 0.470 -0.407 -1.70 1.80 0.71 1.455 "5" (0.612) (0.366) (-0.29) (0.055) (0.036) (0.073) (12) Dividends Dividends to sales (DIVSAL) 18 0.081 0.143 0.062 1.458 1.829 0.83 2.59 "15" (0.042) (0.069) (0.033) (0.082) (0.034) (0.0048) (3) Payout ratio (PAYOUT) 18 0.438 0.79 0.352 2.80 3.53 0.89 3.06 "16" (0.448) (0.71) (0.257) (0.006) (0.0004) (0.001) (2) Risk Inversed time interest earnings (ITEE) 18 0.63 0.124 -0.51 -1.13 2.09 0.78 2.12 "4" (0.178) (0.066) (-0.08) (0.136) (0.018) (0.017) (14) * This means the variable is significant but in another direction, for instance sales efficiency with P-values (0.925 and 0.95) for the Wilcoxon signed-rank test and proportional test, respectively, means that this variable decreased significantly after privatization with 0.075 and 0.049 level of significance. As well, real sales with a P-value (0.904) for the Wilcoxon test means that this variable decreased significantly after privatization with 0.096 level of significance.

36

Table VII Test for Significance Change in Performance for ESA Privatized Firms (12 Firms)

The table shows results for ESA privatized firms. I employ several techniques to test for the significant changes in performance of privatized firms. For the parametric test, the T test is used to test for significant difference between means for the pre- and postprivatization period. I provide the mean values of each variable for the pre and postprivatization period, the mean change for each variable after versus before privatization, and T statistics with its P-value. The Wilcoxon signed-rank test is employed to test for the significant change in median values. I provide median values of each variable for the pre- and postprivatization period with the median change for each variable after versus before privatization, and Z statistics with its P-value. The proportion test is employed to determine whether the proportion of firms experiencing changes in a given direction is greater than what would be expected by chance. The number of useable firms is provided with the number of firms that witness an increase or decrease after privatization. I also provide the percentage of firms that changed as predicted with Z statistics and its P-value. For all tests, I list the results under the null hypothesis that mean (median) = 0.0 and the alternative hypothesis is that mean (median) is greater than 0.0, and this is valid for all variables except for employment, leverage, and inversed time interest earnings where the null hypothesis is that mean (median) = 0.0, and the alternative hypothesis is that mean (median) is less than 0.0. T-Statistic Z-Statistic Percentage Z-Statistic for No. Firms Mean Mean Mean for Difference for Difference of Firms that Significance "Increased" Before After Change in Mean in Median Changes as of Proportion Variables (Decreased) (Median) (Median) (Median) (P-Value) (P-Value) Predicted (P-Value) Profitability Real net income (NI) 12 0.892 1.14 0.25 1.162 1.22 0.67 0.866 "8" (0.784) (1.078) (0.25) (0.135) (0.112) (0.193) (4) Return on sales (ROS) 12 0.094 0.124 0.03 1.72 1.216 0.58 0.289 "7" (0.068) (0.126) (0.01) (0.057) (0.112) (0.386) (5) Return on assets (ROA) 12 0.045 0.069 0.024 1.788 2.31 0.83 2.02 "10" (0.028) (0.044) (0.016) (0.05) (0.01) (0.022) (2) Return on equity (ROE) 12 0.179 0.237 0.058 1.897 1.608 0.58 0.289 "7" (0.18) (0.26) (0.065) (0.042) (0.054) (0.386) (5) Operating Efficiency Sales efficiency (SALEFF) 12 0.914 1.186 0.27 2.03 1.69 0.67 0.866 "8" (0.917) (1.106) (0.15) (0.033) (0.046) (0.193) (4) Net income efficiency (NIEFF) 12 0.879 1.288 0.409 1.93 1.53 0.75 1.44 "9" (0.772) (1.252) (0.334) (0.04) (0.063) (0.074) (3) Capital Expenditure Real capital expenditure (CE) 12 1.06 3.862 2.8 2.01 3.02 1.00 3.18 "12" (0.748) (1.725) 90.70) (0.035) (0.001) (0.0007) (0)

37

Table VII-Continued T-Statistic Z-Statistic Percentage Z-Statistic for No. Firms Mean Mean Mean for Difference for Difference of Firms that Significance "Increased" Before After Change in Mean in Median Changes as of Proportion Variables (Decreased) (Median) (Median) (Median) (P-Value) (P-Value) Predicted (P-Value) Capital expenditure to sales (CESA) 12 0.056 0.164 0.108 3.20 3.02 1.00 3.18 "12" (0.064) (0.124) (0.066) (0.004) (0.001) (0.0007) (0) Capital expenditure to total assets (CETA) 12 0.023 0.071 0.048 3.34 3.02 1.00 3.18 "12" (0.024) (0.058) (0.04) (0.003) (0.001) (0.0007) (0) Output Real sales (SAL) 12 0.927 1.10 0.17 1.455 1.608 0.75 1.44 "9" (0.979) (1.09) (0.21) (0.087) (0.054) (0.074) (3) Employment Total employment (EMPL) 12 2150 1953 -197 -1.67 -1.137 0.58 0.289 "5" (1978) (1490) (-29) (0.061) (0.128) (0.386) (7) Leverage Total debt to total assets (TDTA) 12 0.188 0.202 0.014 0.67 0.00 0.42 0.00 "5" (0.21) (0.21) (0.00) (0.74) (1.00) (1.00) (5) Long term debt to Equity (LTDE) 12 0.939 0.739 -0.2 -1.81 -1.37 0.58 1.33 "2" (1.138) (0.716) (0.11) (0.049) (0.085) (0.091) (7) Dividends Dividends to sales (DIVSAL) 2 0.077 0.075 -0.002 -0.226 0.00 0.50 0.00 "1" 0.077 0.075 (-0.002) (0.57) (1.00) (1.00) (1) Payout ratio (PAYOUT) 2 0.43 0.48 0.05 0.56 0.00 0.50 0.00 "1" (0.43) (0.48) (0.05) (0.337) (1.00) (1.00) (1) Risk Inversed time interest earnings (ITEE) 12 0.276 0.316 0.04 0.755 -0.98 0.33 0.316 "6" (0.244) (0.348) (0.017) (0.767) (0.837) (0.624) (4)

38

Table VIII Test for Significance Change in Performance for Anchor Investor Privatized Firms (6 Firms)

The table shows results for the anchor investor privatized firms. I employ several techniques to test for the significant changes in performance of privatized firms. For the parametric test, the T test is used to test for significant difference between means for the pre- and postprivatization period. I provide the mean values of each variable for the pre- and postprivatization period, the mean change for each variable after versus before privatization, and T statistics with its P-value. The Wilcoxon signed-rank test is employed to test for the significant change in median values. I provide median values of each variable for the pre- and postprivatization period with the median change for each variable after versus before privatization, and Z statistics with its P-value. The proportion test is employed to determine whether the proportion of firms experiencing changes in a given direction is greater than what would be expected by chance. The number of useable firms is provided with the number of firms that witness an increase or decrease after privatization. I also provide the percentage of firms that changed as predicted with Z statistics and its P-value. For all tests, I list the results under the null hypothesis that mean (median) = 0.0 and the alternative hypothesis is that mean (median) is greater than 0.0, and this is valid for all variables except for employment, leverage, and inversed time interest earnings where the null hypothesis is that mean (median) = 0.0, and the alternative hypothesis is that mean (median) is less than 0.0. T-Statistic Z-Statistic Percentage Z-Statistic for No. Firms Mean Mean Mean for Difference for Difference of Firms that Significance "Increased" Before After Change in Mean in Median Changes as of Proportion Variables (Decreased) (Median) (Median) (Median) (P-Value) (P-Value) Predicted (P-Value) Profitability Real net income (NI) 6 0.705 1.555 0.85 2.52 1.677 0.83 1.225 "5" (0.597) (1.593) (0.96) (0.027) (0.047) (0.11) (1) Return on sales (ROS) 6 0.0887 0.272 0.1833 1.535 2.10 1.00 2.04 "6" (0.046) (0.118) (0.071) (0.093) (0.018) (0.021) (0) Return on assets (ROA) 6 0.063 0.129 0.066 2.985 2.10 1.00 2.04 "6" (0.0395) (0.130 (0.049) (0.0153) (0.018) (0.021) (0) Return on equity (ROE) 6 0.275 0.401 0.126 1.975 1.358 0.67 0.408 "4" (0.29) (0.3720 (0.013) (0.053) (0.09) (0.342) (2) Operating Efficiency Sales efficiency (SALEFF) 6 0.918 1.16 0.242 2.088 1.468 0.67 0.408 "4" (0.94) (1.17) (0.36) (0.046) (0.071) (0.342) (2) Net income efficiency (NIEFF) 6 0.572 1.689 1.117 3.54 2.10 1.00 2.04 "6" (0.569) (1.722) (1.177) (0.0083) (0.018) (0.021) (0) Capital Expenditure Real capital expenditure (CE) 4 3.76 0.18 -3.58 -0.704 -0.913 0.17 0.5 "1" (1.93) (1.33) (-0.57) (0.734) (0.819) (0.69) (3)

39

Table VIII-Continued T-Statistic Z-Statistic Percentage Z-Statistic for No. Firms Mean Mean Mean for Difference for Difference of Firms that Significance "Increased" Before After Change in Mean in Median Changes as of Proportion Variables (Decreased) (Median) (Median) (Median) (P-Value) (P-Value) Predicted (P-Value) Capital expenditure to sales (CESA) 6 0.030 0.327 0.297 0.981 0.00 0.50 0.00 "3" (0.034) (0.027) (-0.0005) (0.186) (1.00) (1.00) (3) Capital expenditure to total assets (CETA) 6 0.024 0.042 0.018 0.809 0.00 0.50 0.00 "3" (0.025) (0.03) (0.002) (0.228) (1.00) (1.00) (3) Output Real sales (SAL) 6 1.146 1.07 -0.076 -0.41 -0.419 0.33 0.408 "2" (1.10) (1.05) (-0.019) (0.65) (0.663) (0.658) (4) Employment Total employment (EMPL) 6 3223 2688 -535 -1.537 1.468 0.83 1.225 "1" (2262) (2336) (-507) (0.092) (0.071) (0.11) (5) Leverage Total debt to total assets (TDTA) 6 0.070 0.094 0.024 0.592 -0.839 0.34 0.00 "3" (0.026) (0.11) (0.005) (0.71) (0.80) (0.50) (2) Long term debt to Equity (LTDE) 6 0.34 0.10 -0.24 -1.27 0.63 0.50 0.50 "1" (0.004) (0.068) (0.004) (0.13) (0.264) (0.309) (3) Dividends Dividends to sales (DIVSAL) 6 0.043 0.055 0.012 0.426 0.00 0.50 0.00 "3" (0.021) (0.054) (0.016) (0.344) (1.00) (1.00) (3) Payout ratio (PAYOUT) 6 0.473 0.357 -0.116 0.807 0.00 0.50 0.00 "3" (0.473) (0.307) (-0.156) (0.772) (1.00) (1.00) (3) Risk Inversed time interest earnings (ITEE) 6 0.134 0.070 -0.066 -0.81 0.63 0.50 0.00 "3" (0.070) (0.05) (-0.038) (0.227) (0.265) (0.50) (3)

40

Table IX Comparison of Performance Changes Amongst Groups According to the Type of Privatization (Normalization Method)

The table shows the result of the whole sample comparison using the parametric ANOVA test and the non-parametric Kruskal-Wallis test. The whole sample is classified according to the type of privatization as follows: Maj means majority stakes sold in the stock market, Min, means minority stakes sold in the stock market, ESA, means majority stakes sold to employees’ shareholder association, and Anch means majority stakes sold to anchor investors. I consider the privatization year (year 0) is the base year for all firms, and then I normalize every figure of each individual variable to equal 1:00 in year 0, so other years figures are expressed as a fraction of the year of divestment; in turn, this method considers the year of divestment as the base year. For the ANOVA test, I provide the means value of each sub-sample and number of useable firms; the F ratio is given, which refers to a ratio of the between-group estimate to the within-group estimate. The P-value of the F test is provided to indicate whether there is a statistically significant difference between the mean of each variable from one group to another. The non-parametric Kruskal-Wallis test is employed to test the null hypothesis that the medians of each variable within each of the 4 groups are the same. The data from all groups are firstly combined and ranked from smallest to the largest, and then the average rank is computed from the data for each group. I provide the median value for each group, the average rank, and the P-value using chi-square approximation to show whether there is a statistically significant difference amongst the medians.

ANOVA Test Mean

(No. of firms)

Kruskal-Wallis Test Median

(Average Rank)

Categories

Proxies Maj

Min ESA Anch F. Ratio (P-value)

Maj Min ESA Anch Chi-Square (P-value)

Real net income 1.00 (33)

0.89 (18)

1.15 (12)

1.56 (6)

2.44 (0.073)

0.93 (32.3)

0.95 (30.2)

1.08 (41.6)

1.59 (51)

6.73 (0.08)

Return on sales 1.13 (33)

0.94 (18)

1.40 (12)

1.78 (6)

1.36 (0.26)

1.06 (35.3)

1.05 (30.2)

0.95 (34.5)

1.78 (48.7)

3.85 (0.28)

Return on assets 0.92 (33)

0.89 (18)

1.25 (12)

1.45 (6)

4.02 (0.011)

0.94 (31.2)

0.92 (29.2)

1.20 (46.8)

1.30 (49.7)

10.1 (0.018)

Profitability

Return on equity 0.84 (33)

0.91 (18)

1.11 (12)

1.20 (6)

1.90 (0.138)

0.83 (31.1)

0.79 (29.8)

1.09 (46.6)

1.11 (48.8)

9.30 (0.025)

Sales efficiency 1.11 (33)

0.96 (18)

1.19 (12)

1.16 (6)

1.10 (0.35)

1.03 (34)

0.97 (28.2)

1.11 (41.9)

1.17 (46.7)

5.58 (0.13) Operating

Efficiency Net income efficiency 1.1 (33)

0.91 (18)

1.31 (12)

1.69 (6)

2.8 (0.047)

1.02 (33.2)

0.97 (28.4)

1.13 (42)

1.72 (50.8)

7.4 (0.06)

41

Table IX-Continued ANOVA Test

Mean (No. of firms)

Kruskal-Wallis Test Median

(Average Rank)

Categories

Proxies Maj

Min ESA Anch F. Ratio (P-value)

Maj Min ESA Anch Chi-Square (P-value)

Real capital expenditure 4.68 (28)

15.8 (17)

3.86 (12)

0.18 (4)

0.95 (0.42)

0.66 (25.4)

1.69 (37.7)

1.73 (35.6)

1.33 (27.8)

6.12 (0.106)

Capital expenditure to sales 5.30 (28)

17.3 (17)

2.97 (12)

3.99 (4)

1.02 (0.39)

0.58 (26.4)

1.68 (36.9)

1.74 (34.4)

1.17 (27.8)

4.30 (0.23)

Capital Expenditure

Capital expenditure to total assets 2.78 (28)

15.3 (17)

3.31 (12)

-0.34 (4)

1.33 (0.27)

0.66 (25.1)

1.56 (37.5)

1.60 (37.1)

1.47 (26.5)

7.01 (0.069)

Output Real sales 0.94 (33)

0.94 (18)

1.11 (12)

1.07 (6)

1.58 (0.20)

0.94 (31.4)

0.95 (32)

1.09 (43.7)

1.05 (46.5)

5.68 (0.13)

Employment Employment 0.93 (33)

0.99 (18)

0.93 (12)

0.93 (6)

1.66 (0.18)

0.92 (30.2)

0.98 (47.6)

0.93 (32.8)

0.92 (27.8)

9.9 (0.019)

Total debt to total assets 6.72 (31)

0.88 (18)

1.10 (12)

1.78 (6)

0.77 (0.52)

1.03 (37.3)

0.96 (25.1)

0.98 (30.2)

1.34 (37.3)

4.98 (0.17)

Leverage

Long term debt to Equity 2.1 (31)

0.80 (16)

1.15 (12)

0.83 (5)

0.42 (0.74)

0.79 (32.2)

0.72 (28.3)

0.94 (28.3)

1.00 (33.8)

2.04 (0.56)

Dividends to sales 1.38 (33)

0.98 (16)

0.94 (2)

1.65 (6)

0.78 (0.51)

1.07 (30.6)

1.06 (29.2)

0.94 (25)

1.00 (30.8)

0.267 (0.97)

Dividends

Payout ratio 1.11 (33)

1.02 (18)

1.03 (2)

1.12 (6)

0.06 (0.98)

0.96 (27.2)

1.00 (33.4)

1.03 (32.5)

1.00 (34.7)

2.09 (0.55)

Risk Inversed time interest earnings 6.12 (33)

2.33 (18)

1.05 (12)

0.82 (6)

0.70 (0.56)

1.00 (37.5)

0.97 (30.8)

1.00 (30.1)

0.52 (20.8)

4.35 (0.23)

42

Table X Comparison of Performance Changes Between Each Pair of Groups Classified by the Type of Privatization (Normalization Method)

The table shows the result of the whole sample comparison using the parametric T test and the non-parametric Mann-Whitney test. The whole sample is classified according to the type of privatization as follows: Maj, means majority stakes sold in the stock market, Min, means minority stakes sold in the stock market, ESA, means majority stakes sold to employees’ shareholder association and Anch means majority stakes sold to anchor investors. I consider the privatization year (year 0) is the base year for all firms, and then I normalize every figure of each individual variable to equal 1:00 in year 0, so other years figures are expressed as a fraction of the year of divestment; in turn, this method considers the year of divestment as the base year. The T test is employed to compare the means of the two samples, in other words, the test has been constructed to determine whether the difference between two means equals 0.0 versus the alternative hypothesis that the difference does not equal zero. I provide the value of the T test with its P-value to indicate whether there is a statistically significant difference between the means of each pair of groups. The non-parametric Mann-Whitney test compares the medians of each pair of groups by combining the two groups, sorting the date from smallest to the largest, and then comparing the average ranks of the two groups in the combined data. The null hypothesis is that the median of group one equals the median of group two versus the alternative hypothesis that the median of group one does not equal the median of group two. I provide the average rank for each group, Z statistics, and the P-value to show whether there is a statistically significant difference between medians of each pair of groups.

Maj-Min Maj-ESA Maj-Anch Min-ESA Min-Anch ESA-Anch Categories

Proxies T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

Real net income 0.64 (0.52)

27-25 -0.32 (0.76)

-0.72 (0.48)

21-27 -1.36 (0.17)

-1.86 (0.071)

18-29 -2.02 (0.043)

-2.28 (0.03)

13-19 -1.70 (0.09)

-2.56 (0.046)

11-18 -2.00 (0.046)

-1.50 (0.18)

8-12 -1.31 (0.19)

Return on sales 0.79 (0.44)

27-23 -0.91 (0.37)

-0.68 (0.50)

23-22 -1.28 (0.90)

-1.41 (0.17)

19-27 -1.56 (0.12)

-1.4 (0.17)

15-17 -0.55 (0.58)

-2.13 (0.084)

11-17 -1.87 (0.062)

-0.69 (0.50)

8-12 -1.31 (0.19)

Return on assets 0.22 (0.82)

27-25 -0.32 (0.76)

-2.52 (0.017)

20-30 -2.26 (0.024)

-2.31 (0.26)

18-29 2.06 (0.039)

-2.99 (0.006)

12-21 -2.58 (0.009)

-2.31 (0.06)

11-17 -1.87 (0.062)

-0.81 (0.44)

9-11 -0.66 (0.51)

Profitability

Return on equity -0.55 (0.59)

26-25 -0.28 (0.79)

-2.44 (0.021)

20-31 -2.33 (0.02)

-1.86 (0.07)

18-28 -1.99 (0.047)

-1.33 (0.19)

13-20 -2.16 (0.031)

-1.40 (0.19)

10-17 -1.93 (0.053)

-0.49 (0.64)

9-10 -0.28 (0.78)

Sales efficiency 1.26 (0.22)

27-24 -0.73 (0.47)

-0.57 (0.57)

22-27 -1.08 (0.28)

0.28 (0.78)

19-24 -1.01 (0.31)

-2.19 (0.048)

13-19 -1.95 (0.051)

-3.54 (0.002)

10-19 -2.60 (0.009)

0.24 (0.81)

9-10 -0.47 (0.64) Operating

Efficiency

Net income efficiency 1.03 (0.31)

27-24 -0.73 (0.47)

-0.87 (0.39)

22-27 -1.23 (0.22)

-1.78 (0.083)

18-28 -1.95 (0.052)

-2.66 (0.17)

13-19 -1.99 (0.047)

-2.68 (0.039)

11-18 -2.27 (0.023)

-1.24 (0.25)

9-12 -1.03 (0.30)

43

Table X-Continued Maj-Min Maj-ESA Maj-Anch Min-ESA Min-Anch ESA-Anch

Categories

Proxies T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

Capital expenditure -1.27 (0.21)

20-29 -2.25 (0.025)

0.18 (0.86)

18-25 -1.71 (0.087)

0.59 (0.56)

16-17 -0.11 (0.91)

0.96 (0.34)

15-14 -0.35 (0.72)

0.72 (0.48)

12-9 -0.90 (0.37)

1.11 (0.31)

9-7 -0.61 (0.54)

Capital expenditure to sales -1.32 (0.19)

20-28 -1.97 (0.049)

0.58 (0.56)

19-24 -1.30 (0.19)

0.18 (0.86)

17-17 0.00 (1.00)

1.09 (0.28)

15-14 -0.31 (0.76)

0.57 (0.57)

11-9 -0.81 (0.42)

-0.148 (0.89)

9-8 -0.49 (0.63)

Capital Expenditure

Capital expenditure to total assets -1.58 (0.12)

20-29 -2.32 (0.02)

-0.24 (0.81)

18-26 -1.95 (0.05)

0.84 (0.41)

16-17 -0.057 (0.96)

1.00 (0.33)

15-15 -0.04 (0.97)

0.74 (0.47)

12-8 -0.99 (0.33)

1.40 (0.23)

9-6 -0.97 (0.33)

Output Real sales -0.11 (0.91)

26-27 -0.24 (0.82)

-1.62 (0.11)

21-29 -1.75 (0.08)

-1.58 (0.14)

19-27 -1.52 (0.13)

-2.40 (0.026)

11-18 -2.07 (0.039)

-1.75 (0.10)

13-18 -1.48 (0.14)

-0.27 (0.79)

9-10 -0.094 (0.93)

Employment Employment -3.01 (0.004)

21-35 -3.06 (0.002)

-0.1.3 (0.90)

23-24 -0.28 (0.78)

-0.13 (0.90)

20-19 -0.31 (0.76)

1.59 (0.12)

18-12 -1.69 (0.09)

1.59 (0.13)

14-7 -2.13 (0.033)

-0.16 (0.99)

10-9 -0.28 (0.78)

Total debt to total assets 1.09 (0.28)

27-18 -2.08 (0.038)

0.91 (0.37)

23-18 -1.17 (0.24)

0.56 (0.58)

19-19 -0.06 (0.95)

-1.05 (0.30)

13-16 -0.84 (0.40)

-1.40 (0.22)

11-14 -1.11 (0.27)

-1.00 (0.35)

9-11 -0.85 (0.40)

Leverage

Long term debt to Equity 0.86 (0.39)

25-22 -0.65 (0.52)

0.54 (0.59)

21-25 -0.91 (0.36)

0.47 (0.64)

18-19 -0.23 (0.82)

-1.34 (0.19)

13-17 -1.44 (0.15)

-0.20 (0.84)

10-12 -0.58 (0.56)

0.74 (0.47)

10-8 -0.59 (0.55)

Dividends to sales 1.27 (0.21)

27-25 -0.30 (0.77)

0.46 (0.65)

18-15 -0.43 (0.67)

-0.44 (0.66)

20-20 -0.04 (0.97)

0.15 (0.89)

11-9 -0.50 (0.61)

-0.99 (0.37)

12-13 -0.27 (0.79)

-0.57 (0.59)

5-5 0.00 (1.00)

Dividends

Payout ratio 0.40 (0.69)

24-30 -1.28 (0.20)

0.11 (0.91)

18-22 -0.57 (0.57)

-0.021 (0.98)

19-23 -0.82 (0.41)

-0.12 (0.91)

11-10 -0.25 (0.80)

-0.36 (0.73)

12-14 -0.40 (0.69)

-0.17 (0.87)

4-5 -0.34 (0.74)

Risk Inversed time interest earnings 0.87 (0.39)

26-21 -1.22 (0.22)

0.96 (0.34)

23-19 -1.09 (0.28)

1.60 (0.12)

19-10 -1.87 (0.062)

1.15 (0.26)

16-15 -0.17 (0.87)

0.88 (0.39)

13-9 -1.00 (0.31)

0.64 (0.53)

10-8 -0.85 (0.40)

44

Table XI Comparison of Performance Changes Between Each Individual Group and the other Combined Groups (Normalization Method)

The table shows the result of the whole sample comparison using the parametric T test and the non-parametric Mann-Whitney test. The whole sample is classified according to the type of privatization as follows: Maj, means majority stakes sold in the stock market, Min, means minority stakes sold in the stock market, ESA, means majority stakes sold to employees’ shareholder association and Anch means majority stakes sold to anchor investors. I compare each individual group with the rest of the other combined groups, i.e. majority versus minority, ESA and anchor investors all together. I consider the privatization year (year 0) is the base year for all firms, and then I normalize every figure of each individual variable to equal 1:00 in year 0, so other years figures are expressed as a fraction of the year of divestment; in turn, this method considers the year of divestment as the base year. The T test is employed to compare the means of the two samples, in other words, the test has been constructed to determine whether the difference between two means equals 0.0 versus the alternative hypothesis that the difference does not equal zero. I provide the value of the T test with its P-value to indicate whether there is a statistically significant difference between the means of each pair of groups. The non-parametric Mann-Whitney test compares the medians of each pair of groups by combining the two groups, sorting the date from smallest to the largest, and then comparing the average ranks of the two groups in the combined data. The null hypothesis is that the median of group one equals the median of group two versus the alternative hypothesis that the median of group one does not equal the median of group two. I provide the average rank for each group, Z statistics and the P-value to show whether there is a statistically significant difference between medians of each pair of groups.

Maj-The Rest Min- The Rest ESA- The Rest Anch- The Rest Categories

Proxies T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

Real net income -0.65 (0.52)

32-37 -1.07 (0.29)

-1.36 (0.18)

30-37 -1.18 (0.24)

0.96 (0.35)

42-34 -1.25 (0.21)

2.40 (0.019)

51-34 -2.04 (0.041)

Return on sales -0.40 (0.69)

35-34 -0.13 (0.90)

-1.25 (0.21)

30-37 -1.19 (0.23)

0.62 (0.55)

34-35 -0.10 (0.92)

1.58 (0.12)

49-34 -1.75 (0.081)

Return on assets -1.63 (0.11)

31-38 -1.50 (0.13)

-1.31 (0.19)

29-37 -1.44 (0.15)

2.45 (0.023)

47-33 -2.25 (0.025)

2.45 (0.017)

50-34 -1.87 (0.061)

Profitability

Return on equity -1.77 (0.081)

31-38 -1.54 (0.12)

-0.25 (0.80)

30-37 -1.29 (0.20)

2.06 (0.049)

47-33 -2.20 (0.028)

1.51 (0.14)

49-34 -1.77 (0.077)

Sales efficiency 0.37 (0.71)

34-36 -0.37 (0.71)

-1.69 (0.095)

28-37 -1.67 (0.095)

1.11 (0.29)

42-34 -1.31 (0.19)

0.96 (0.36)

47-34 -1.49 (0.14) Operating

Efficiency

Net income efficiency -0.46 (0.65)

33-37 -0.73 (0.46)

-1.79 (0.077)

28-37 -1.67 (0.095)

1.26 (0.22)

42-34 -1.33 (0.18)

2.30 (0.024)

51-34 -2.02 (0.043)

45

Table XI-Continued Maj-The Rest Min- The Rest ESA- The Rest Anch- The Rest

Categories

Proxies T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

Real capital expenditure -0.76 (0.45)

25-36 -2.26 (0.024)

1.68 (0.098)

38-28 -1.83 (0.067)

-0.54 (0.60)

36-30 -1.00 (0.32)

-0.59 (0.56)

28-31 -0.38 (0.71)

Capital expenditure to sales -0.78 (0.44)

26-35 -1.85 (0.064)

1.75 (0.085)

37-29 -1.66 (0.096)

-0.76 (0.45)

34-30 -0.74 (0.46)

-0.33 (0.75)

28-31 -0.38 (0.71)

Capital Expenditure

Capital expenditure to total assets -1.08 (0.29)

25-36 -2.40 (0.016)

2.01 (0.049)

37-28 -1.79 (0.074)

-0.49 (0.63)

37-30 -1.32 (0.19)

-0.59 (0.56)

27-31 -0.52 (0.60)

Output Real sales -1.31 (0.20)

31-38 -1.43 (0.15)

-0.65 (0.52)

32-36 -0.74 (0.46)

1.85 (0.068)

44-33 -1.65 (0.098)

1.35 (0.21)

47-34 -1.47 (0.14)

Employment Employment -1.40 (0.17)

30-39 -1.90 (0.058)

3.11 (0.003)

51-18 -3.10 (0.002)

-0.48 (0.63)

33-35 -0.41 (0.68)

-0.30 (0.77)

28-36 -0.92 (0.36)

Total debt to total assets 1.54 (0.13)

37-29 -1.77 (0.077)

-1.59 (0.12)

25-36 -1.92 (0.055)

-0.69 (0.49)

30-34 -0.58 (0.57)

-0.35 (0.73)

37-32 -0.58 (0.57)

Leverage

Long term debt to Equity 1.11 (0.27)

32-33 -0.13 (0.90)

-1.31 (0.20)

28-34 -1.04 (0.30)

-0.32 (0.75)

38-31 -1.21 (0.23)

-0.37 (0.72)

34-32 -0.16 (0.87)

Dividends to sales 0.84 (0.40)

31-29 -0.31 (0.76)

-1.32 (0.19)

29-30 -0.25 (0.81)

-0.41 (0.68)

25-30 -0.42 (0.68)

0.61 (0.56)

31-30 0.13 (0.90) Dividends

Payout ratio 0.34 (0.74)

27-34 -1.44 (0.15)

-0.42 (0.68)

33-28 -1.00 (0.32)

-0.087 (0.93)

32-30 -0.21 (0.83)

0.15 (0.89)

35-30 -0.70 (0.48)

Risk Inversed time interest earnings 1.43 (0.16)

38-29 -1.79 (0.073)

-0.55 (0.58)

31-34 -0.59 (0.56)

-0.81 (0.42)

30-34 -0.59 (0.55)

-0.54 (0.60)

21-34 -1.50 (0.13)

46

Table XII Comparison of Performance Changes Amongst Groups According to the Type of Privatization (Relative Performance Change Method)

The table shows the result of the whole sample comparison using the parametric ANOVA test and the non-parametric Kruskal-Wallis test. The whole sample is classified according to the type of privatization as follows: Maj, means majority stakes sold in the stock market, Min, means minority stakes sold in the stock market, ESA, means majority stakes sold to employees’ shareholder association and Anch means majority stakes sold to anchor investors. In this method, I consider the history of a firm’s performance by calculating postprivatization performance of a given firm relative to its performance prior to the year of privatization. According to that, I calculate the relative performance change for each firm as follows: 1,1, /)( , −−−= titi PPPRPC ti where RPC = Relative Performance Change, tiP , = Mean performance post-privatization period, 1, −tiP = Mean performance pre-privatization period. For the ANOVA test, I provide the means value of each sub-sample and number of useable firms; the F ratio is given, which refers to a ratio of the between-group estimate to the within-group estimate. The P-value of the F test is provided to indicate whether there is a statistically significant difference between the mean of each variable from one group to another. The non-parametric Kruskal-Wallis test tests the null hypothesis that the medians of each variable within each of the 4 groups are the same. The data from all groups are firstly combined and ranked from smallest to the largest, and then the average rank is computed from the data for each group. I provide the median value for each group, the average rank and the P-value using chi-square approximation to show whether there is a statistically significant difference amongst the medians.

ANOVA Test Mean

(No. of firms)

Kruskal-Wallis Test Median

(Average Rank)

Categories

Proxies Maj

Min ESA Anch F. Ratio (P-value)

Maj Min ESA Anch Chi-Square (P-value)

Real net income 1.05 (32)

0.39 (17)

1.67 (12)

1.87 (6)

0.88 (0.46)

0.30 (33)

0.20 (31.2)

0.46 (34.8)

1.58 (45.7)

2.60 (0.46)

Return on sales 1.20 (32)

0.30 (17)

1.24 (12)

1.90 (6)

0.72 (0.55)

0.054 (30.8)

0.21 (32)

0.32 (36.3)

2.27 (52.3)

6.52 (0.089)

Return on assets 0.97 (32)

0.45 (17)

1.39 (12)

2.18 (6)

1.08 (0.37)

0.27 (30.7)

0.53 (31.7)

0.52 (39.4)

1.97 (47.5)

4.99 (0.17)

Profitability

Return on equity 0.38 (30)

034 (17)

1.23 (11)

0.83 (6)

0.78 (0.51)

0.12 (29.6)

0.33 (34.1)

0.33 (34.7)

0.32 (38.5)

1.65 (0.65)

Sales efficiency 0.55 (33)

0.14 (18)

0.47 (12)

0.34 (6)

0.45 (0.72)

0.004 (35.3)

-0.075 (27.5)

0.16 (41.3)

0.39 (43)

4.68 (0.20)

Operating Efficiency Net income efficiency 1.39

(32) 0.42 (17)

2.76 (12)

2.57 (6)

1.04 (0.38)

0.44 (33.3)

0.16 (29.5)

0.55 (34.3)

2.36 (50)

4.99 (0.17)

Real capital expenditure 0.98 (21)

4.53 (16)

2.86 (12)

1.58 (4)

0.66 (0.58)

-0.16 (23.8)

-0.47 (23.6)

1.93 (38.9)

-0.33 (22)

9.28 (0.026)

Capital expenditure to sales 1.26 (25)

6.25 (16)

2.51 (12)

7.11 (6)

0.88 (0.46)

-0.13 (25.6)

-0.45 (27.6)

1.32 (41.4)

1.01 31.8)

7.32 (0.062)

Capital Expenditure

Capital expenditure to total assets 0.17 (25)

3.57 (16)

2.52 (12)

1.35 (6)

1.68 (0.18)

-0.21 (24.3)

-0.41 (27.4)

1.81 (44.4)

1.32 (32)

11.68 (0.009)

47

Table XII-Continued ANOVA Test

Mean (No. of firms)

Kruskal-Wallis Test Median

(Average Rank)

Categories

Proxies Maj

Min ESA Anch F. Ratio (P-value)

Maj Min ESA Anch Chi-Square (P-value)

Output Real sales 0.14 (33)

0.13 (18)

0.30 (12)

0.035 (6)

0.24 (0.87)

-0.08 (33.8)

-0.07 (31)

0.21 (44.8)

-0.016 (34)

3.68 (0.30)

Employment Employment -0.13 (33)

0.005 (18)

-0.074 (12)

-0.19 (6)

4.20 (0.009)

-0.13 (28.5)

-0.012 (47.2)

-0.011 (39.3)

-0.17 (25.7)

12 (0.007)

Total debt to total assets 0.094 (31)

-0.19 (17)

0.001 (10)

0.78 (4)

0.80 (0.50)

-0.23 (31.4)

-0.56 (26.8)

-0.039 (36.3)

0.23 (40.5)

2.86 (0.41)

Leverage Long term debt to Equity -0.30

(27) -0.004 (16)

-044 (9)

-0.85 (3)

0.65 (0.59)

-0.73 (23)

-0.52 (32.3)

-0.31 (40.1)

-0.80 (13.7)

11.26 (0.0096)

Dividends to sales 5.95 (31)

1.48 (18)

0.21 (2)

0.87 (6)

1.06 (0.37)

0.82 (29.8)

1.05 (30.7)

0.21 (19.5)

0.084 (22.7)

1.80 (0.61)

Dividends Payout ratio 1.60

(31) 1.07 (18)

0.20 (2)

-0.26 (6)

0.77 (0.52)

0.38 (29.3)

0.60 (33.9)

0.20 (21.5)

-0.33 (15.3)

6.05 (0.11)

Risk Inversed time interest earnings 5.49 (32)

1.19 (18)

0.13 (10)

162 (4)

5.72 (0.002)

-0.53 (32.3)

-0.68 (29)

0.19 (39.4)

-0.68 (32.5)

1.98 (0.58)

48

Table XIII

Comparison of Performance Changes Between Each Pair of Groups Classified by the Type of Privatization (Relative Performance Change Method) The table shows the result of the whole sample comparison using the parametric T test and the non-parametric Mann-Whitney test. The whole sample is classified according to the type of privatization as follows: Maj, means majority stakes sold in the stock market, Min, means minority stakes sold in the stock market, ESA, means majority stakes sold to employees’ shareholder association and Anch means majority stakes sold to anchor investors. In this method, I consider the history of a firm’s performance by calculating postprivatization performance of a given firm relative to its performance prior to the year of privatization. According to that, I calculate the relative performance change for each firm as follows: 1,1, /)( , −−−= titi PPPRPC ti where RPC = Relative Performance Change, tiP , = Mean performance post-privatization period, 1, −tiP = Mean performance pre-privatization period The T test is employed to compare the means of the two samples, in other words, the test has been constructed to determine whether the difference between two means equals 0.0 versus the alternative hypothesis that the difference does not equal zero. I provide the value of the T test with its P-value to indicate whether there is a statistically significant difference between the means of each pair of groups. The Non-parametric Mann-Whitney test compares the medians of each pair of groups by combined the two groups, sorting the date from smallest to the largest, and then comparing the average ranks of the two groups in the combined data. The null hypothesis is that the median of group one equals the median of group two versus the alternative hypothesis that the median of group one does not equal the median of group two. I provide the average rank for each group, Z statistics, and the P-value to show whether there is a statistically significant difference between medians of each pair of groups.

Maj-Min Maj-ESA Maj-Anch Min-ESA Min-Anch ESA-Anch Categories

Proxies T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-Value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

Real net income 1.19 (0.24)

25-24 -0.21 (0.83)

-0.47 (0.65)

22-23 -0.24 (0.81)

-0.96 (0.37)

19-25 -1.32 (0.19)

-1.02 (0.33)

14-16 -0.49 (0.63)

-2.86 (0.009)

10-16 -1.82 (0.07)

-0.14 (0.89)

8-11 -1.03 (0.30)

Return on sales 1.06 (0.30)

25-26 -0.34 (0.74)

-0.038 (0.97)

22-25 -0.84 (0.40)

-0.90 (0.38)

18-29 -2.16 (0.031)

-1.45 (0.17)

14-16 -0.53 (0.60)

-4.38 (0.00)

10-19 -2.73 (0.006)

-0.84 (0.41)

8-12 -1.59 (0.11)

Return on assets 0.77 (0.45)

25-26 -0.23 (0.82)

-0.57 (0.57)

21-27 -1.34 (0.18)

-1.27 (0.24)

18-27 -1.80 (0.072)

-1.61 (0.13)

14-17 -1.06 (0.29)

-3.06 (0.006)

10-16 -1.82 (0.07)

-0.80 (0.44)

9-11 -0.94 (0.35)

Profitability

Return on equity 0.13 (0.90)

23-26 -0.75 (0.45)

-0.81 (0.44)

20-24 -0.85 (0.40)

-0.77 (0.46)

18-23 -1.06 (0.29)

-0.87 (0.41)

15-14 -0.12 (0.91)

-1.18 (0.25)

12-14 -0.63 (0.53)

0.35 (0.73)

8-9 -0.20 (0.84)

Sales efficiency 1.03 (0.31)

28-23 -1.12 (0.26)

0.23 (0.82)

22-26 -0.80 (0.43)

0.34 (0.74)

20-23 -0.58 (0.56)

-1.01 (0.32)

13-19 -2.03 (0.042)

-0.49 (0.63)

11-18 -2.00 (0.046)

0.46 (0.65)

9-10 -0.28 (0.78) Operating

Efficiency

Net income efficiency 1.42 (0.16)

26-23 -0.55 (0.59)

-0.60 (0.56)

22-23 -0.18 (0.85)

-1.13 (0.29)

18-27 -1.68 (0.093)

-1.05 (0.32)

14-16 -0.66 (0.51)

-3.56 (0.002)

10-18 -2.45 (0.014)

0.082 (0.94)

8-13 -1.78 (0.075)

49

Table XIII-Continued Maj-Min Maj-ESA Maj-Anch Min-ESA Min-Anch ESA-Anch

Categories

Proxies T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-Value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

Real capital expenditure -1.06 (0.30)

19-18 -0.28 (0.78)

-1.69 (0.098)

13-24 -3.18 (0.001)

-0.27 (0.79)

13-11 -0.59 (0.55)

0.51 (0.62)

12-18 -2.14 (0.033)

0.44 (0.66)

11-11 0.00 (1.00)

0.68 (0.51)

10-6 -1.46 (0.15)

Capital expenditure to sales -1.05 (0.31)

21-22 -0.24 (0.81)

-1.13 (0.27)

15-26 -2.86 (0.004)

-0.88 (0.42)

15-18 -0.65 (0.52)

0.80 (0.44)

13-18 -1.81 (0.070)

-0.10 (0.92)

11-13 -0.59 (0.56)

-0.70 (0.52)

10-8 -0.94 (0.35)

Capital Expenditure

Capital expenditure to total assets -1.50 (0.15)

21-22 -0.29 (0.77)

-3.65 (0.001)

14-29 -3.7 (0.00)

-1.09 (0.32)

15-19 -0.90 (0.37)

0.46 (0.65)

12-18 -2.14 (0.033)

0.60 (0.56)

11-13 -0.52 (0.61)

1.03 (0.33)

11-7 -1.22 (0.22)

Output Real sales 0.004 (0.997)

26-25 -0.24 (0.81)

-0.78 (0.44)

21-27 -1.36 (0.17)

0.36 (0.72)

20-20 -0.08 (0.94)

-0.56 (0.58)

13-20 -2.2 (0.028)

0.39 (0.70)

12-14 -0.53 (0.59)

1.31 (0.21)

10-7 -1.12 (0.26)

Employment Employment -4.05 (0.00)

21-36 -3.51 (0.00)

-1.17 (0.25)

21-27 -1.34 (0.18)

0.98 (0.34)

20-17 -0.58 (0.56)

1.40 (0.17)

16-15 -0.42 (0.67)

2.57 (0.018)

14-7 -2.13 (0.033)

1.06 (0.31)

10-8 -0.84 (0.40)

Total debt to total assets 0.79 (0.44)

26-23 -0.68 (0.50)

0.33 (0.75)

21-23 -0.50 (0.62)

-0.95 (0.35)

17-22 -0.93 (0.35)

-0.70 (0.49)

11-16 -1.53 (0.13

-1.17 (0.12)

10-15 -1.43 (0.15)

-0.87 (0.45)

7-8 -0.28 (0.78)

Leverage

Long term debt to Equity -0.80 (0.43)

19-27 -1.99 (0.047)

-0.76 (0.46)

16-26 -2.50 (0.012)

2.00 (0.053)

16-11 -0.93 (0.35)

0.098 (0.92)

11-16 -1.53 (0.13)

2.53 (0.022)

11-5 -1.79 (0.074)

2.94 (0.016)

8-2 -2.50 (0.013)

Dividends to sales 1.43 (0.16)

25-25 -0.15 (0.89)

0.61 (0.55)

17-12 -0.76 (0.45)

0.94 (0.36)

20-16 -0.95 (0.34)

0.73 (0.48)

11-6 -1.13 (0.26)

0.55 (0.59)

13-10 -1.00 (0.32)

-0.38 (0.72)

5-5 0.00 (1.00) Dividends

Payout ratio 0.57 (0.57)

24-27 -0.85 (0.40)

0.56 (0.58)

17-13 -0.53 (0.60)

2.69 (0.11)

20-12 -1.77 (0.076)

0.51 (0.62)

11-6 -1.13 (0.26)

2.09 (0.048)

15-6 -2.53 (0.011)

0.81 (0.45)

5-4 -0.34 (0.74)

Risk Inversed time interest earnings 0.88 (0.38)

26-24 -0.49 (0.63)

0.82 (0.42)

21-24 -0.80 (0.43)

-0.96 (0.41)

18-19 -0.15 (0.88)

0.97 (0.34)

11-16 -1.53 (0.13

-0.99 (0.40)

11-12 -0.26 (0.80)

-1.00 (0.39)

8-6 -0.85 (0.40)

50

Table XIV Comparison of Performance Changes Between Each Individual Group and the other Combined Groups (Relative Performance Change Method) The table shows the result of the whole sample comparison using the parametric T test and the non-parametric Mann-Whitney test. The whole sample is classified according to the type of privatization as follows: Maj, means majority stakes sold in the stock market, Min, means minority stakes sold in the stock market, ESA, means majority stakes sold to employees’ shareholder association and Anch means majority stakes sold to anchor investors. I compare each individual group with the rest of the other combined groups, i.e. majority versus minority, ESA and anchor investors all together. In this method, I consider the history of a firm’s performance by calculating postprivatization performance of a given firm relative to its performance prior to the year of privatization. According to that, I calculate the relative performance change for each firm as follows: 1,1, /)( , −−−= titi PPPRPC ti where RPC = Relative Performance Change, tiP , = Mean performance post-privatization period, 1, −tiP = Mean performance pre-privatization period. The T test is employed to compare the means of the two samples, in other words, the test has been constructed to determine whether the difference between two means equals 0.0 versus the alternative hypothesis that the difference does not equal zero. I provide the value of the T test with its P-value to indicate whether there is a statistically significant difference between the means of each pair of groups. The Non-parametric Mann-Whitney test compares the medians of each pair of groups by combined the two groups, sorting the date from smallest to the largest, and then comparing the average ranks of the two groups in the combined data. The null hypothesis is that the median of group one equals the median of group two versus the alternative hypothesis that the median of group one does not equal the median of group two. I provide the average rank for each group, Z statistics, and the P-value to show whether there is a statistically significant difference between medians of each pair of groups.

Maj-The Rest Min- The Rest ESA- The Rest Anch- The Rest Categories

Proxies T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

Real net income -0.05 (0.96)

33-35 0.40 (0.69)

-1.32 (0.19)

31-35 -0.68 (0.50)

0.58 (0.58)

35-34 -0.15 (0.88)

1.07 (0.32)

46-33 -1.54 (0.12)

Return on sales 0.48 (0.64)

31-37 -1.28 (0.20)

-1.36 (0.18)

32-35 -0.50 (0.61)

0.33 (0.75)

36-34 -0.44 (0.66)

1.62 (0.13)

52-32 -2.42 (0.016)

Return on assets -0.18 (0.86)

31-37 -1.34 (0.18)

-1.26 (0.21)

32-35 -0.56 (0.57)

0.71 (0.49)

39-33 -1.06 (0.29)

-1.47 (0.19)

48-33 -1.78 (0.075)

Profitability

Return on equity -0.75 (0.46)

30-35 -1.18 (0.24)

-0.61 (0.55)

34-32 -0.42 (0.68)

0.79 (0.45)

35-32 0.44 (0.66)

0.52 (0.62)

39-32 -0.83 (0.41)

Sales efficiency 0.92 (0.36)

35-34 -0.13 (0.90)

-1.28 (0.21)

28-38 -1.85 (0.065)

0.24 (0.81)

41-34 -1.20 (0.23)

-0.16 (0.88)

43-34 -1.02 (0.31) Operating

Efficiency

Net income efficiency -0.21 (0.83)

33-35 -0.29 (0.77)

-1.35 (0.18)

30-36 -1.10 (0.27)

0.69 (0.51)

34-33 -0.05 (0.96)

1.12 (0.30)

50-32 -2.11 (0.035)

51

Table XIV-Continued Maj-The Rest Min- The Rest ESA- The Rest Anch- The Rest

Categories

Proxies T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

T-Test (P-value)

Av-Rank Z-Test (P-value)

Real capital expenditure -1.38 (0.17)

24-29 -1.24 (0.22)

0.88 (0.39)

24-29 -1.07 (0.29)

0.27 (0.79)

39-24 -3.04 (0.002)

-0.39 (0.72)

22-27 -0.67 (0.50)

Capital expenditure to sales -1.47 (0.15)

25-33 -1.69 (0.092)

0.80 (0.44)

28-31 -0.65 (0.52)

-0.62 (0.54)

41-27 -2.58 (0.0098)

0.84 (0.41)

32-30 -0.28 (0.78)

Capital Expenditure

Capital expenditure to total assets -2.32 (0.025)

24-34 -2.19 (0.028)

1.14 (0.27)

27-31 -0.72 (0.47)

1.03 (0.31)

44-26 -3.26 (0.001)

-0.19 (0.85)

32-30 -0.30 (0.76)

Output Real sales -0.23 (0.82)

34-36 -0.47 (0.64)

-0.15 (0.88)

31-36 -0.98 (0.33)

0.99 (0.33)

45-33 -1.85 (0.064)

-0.44 (0.66)

34-35 -0.13 (0.90)

Employment Employment -2.03 (0.046)

28-41 -2.58 (0.0098)

3.75 (0.001)

47-31 -3.00 (0.003)

0.39 (0.70)

39-34 -0.81 (0.42)

-1.68 (0.097)

26-36 -1.19 (0.23)

Total debt to total assets 0.33 (0.74)

31-32 -0.042 (0.97)

-1.14 (0.26)

27-33 -1.27 (0.20)

-0.14 (0.90)

36-30 -0.91 (0.36)

1.34 (0.19)

41-31 -1.03 (0.30)

Leverage

Long term debt to Equity -0.65 (0.52)

23-33 -2.26 (0.024)

0.77 (0.45)

32-26 -1.26 (0.20)

0.47 (0.64)

40-26 -2.48 (0.013)

-1.06 (0.30)

13-29 -1.66 (0.098)

Dividends to sales 1.80 (0.077)

30-28 -0.42 (0.68)

-1.19 (0.24)

31-28 -0.53 (0.60)

-0.51 (0.61)

19-29 -0.82 (0.41)

-0.76 (0.45)

23-30 -0.99 (0.32)

Dividends

Payout ratio 1.16 (0.25)

29-28 -0.14 (0.89)

-0.20 (0.84)

34-27 -1.51 (0.13)

-0.48 (0.63)

21-29 -0.65 (0.52)

-3.10 (0.004)

15-31 -2.13 (0.033)

Risk Inversed time interest earnings -0.75 (0.46)

32-33 -0.08 (0.94)

-0.73 (0.47)

29-34 -0.93 (0.35)

-0.55 (0.59)

39-31 -1.27 (0.21)

0.98 (0.40)

33-33 0.00 (1.00)