8 17. Sheshinski and Lopez-Calva's (1998) evaluation of the empirical evidence<sup>alsosupports</sup> the view that privatization has positive effects on enterprise profitability<sup>andefficiency. They</sup> found that: (i) privatized firms improve profitability after sale irrespective of market<sup>structure,</sup> though competitive firms show higher productivity increases compared<sup>to firmsin more</sup> concentrated markets. In the latter, deregulation policies, which the authors<sup>relate to privatization</sup> programs, are shown to speed up the convergence process of firms to industry standards;<sup>and(ii)</sup> fully privatized firms perform better than partially privatized firms. In<sup>their older, seminalstudy,</sup> Boardman and Vining (1989) provide evidence to support the latter<sup>finding.</sup> Analyzing the performance of the 500 largest non-U.S. industrial firms in 1983, they show<sup>that state-ownedand</sup> mixed ownership enterprises are significantly less profitable and productive<sup>thanareprivately</sup> owned firms. They conclude that mixed enterprises are no more profitable<sup>thanSOEs,and</sup> suggest that full private control, not just partial ownership, is<sup>importantforachieving</sup> performance improvements.

18. It can be argued that there are difficult methodological problems<sup>withcross-cutting</sup> studies of the above mentioned type that might lead them to be biased in<sup>favorof privatization.</sup> First, there is a problem of selection bias. Firms sold by public offering will be<sup>the "creamof the</sup> crop;" i.e., to meet stock exchange listing requirements they will have been<sup>profitablefor some</sup> time, possess up to date and accurate accounts, and in general will be<sup>the largestandamongthe</sup> best performing firms sold in the privatization program. Thus there is the possibility<sup>that itisnot</sup> privatization that causes performance improvements, but rather it is that<sup>thehighestpotential</sup> firms are privatized. In addition, because of data limitations, developed countries<sup>areover</sup> represented in the samples of such studies, leading to further possible<sup>selectionbias.Second,</sup> there are data constraints as well that some argue influence the findings.<sup>Comparingaccounting</sup> information across different countries and at different points in time can be<sup>difficultandfraught</sup> with problems. Most of the studies do not account for changes in the macroeconomic<sup>or business</sup> environment over the given time period, both of which influence the<sup>outcomesof privatization,</sup> and it could be argued that a rising economic tide lifted all firms, and not just the privatized<sup>ones.</sup> And third, using profitability as an indicator of improved performance<sup>isflawedastheprivate</sup> sector by definition is profit maximizing while profit is not likely to<sup>beagoalinthepublic</sup> sector.

19. Despite these drawbacks, these studies are the few that directly compare large<sup>samplesof</sup> firms from a range of industries and countries over different time periods,<sup>and they consistently</sup> suggest that privatization does improve firm performance, not just in terms of<sup>profitability</sup> changes but also efficiency improvements. Moreover, some of the methodological<sup>drawbacks</sup> have been addressed in other studies. Boubakri and Cossett (1998),<sup>for example,analyzed the</sup> performance of 79 newly privatized firms in 21 developing countries<sup>thatexperiencedfullor</sup> partial privatization between 1980 and 1992. The sample was diversified, with wide geographical dispersion and different levels of country development, and<sup>firmsof differentsize</sup> and in different industries and market structures. They too found<sup>significantincreasesin</sup> profitability (up on average by 124 percent after privatization), operating<sup>efficiency(real sales</sup> per employee up by 25 percent on average and net income per employee<sup>upby63percent),</sup> capital investment spending (up 126 percent), and employment (up 1.3 percent), and<sup>a declinein</sup>