7

- Third, the broader welfare and economic consequences of<sup>privatizationare notas widely</sup> studied, though the few rigorous evaluations show that<sup>privatizationhasdonewell,and</sup> that the welfare effects when compared to realistic<sup>counterfactualshave beenpositive,</sup> often substantially so.

- Fourth, growing analysis of the employment and broader<sup>labor market impacts showsthat</sup> privatization does not always lead to unemployment,<sup>but thattheoutcomesaremixed,</sup> reflecting country and industry differences. When evaluated<sup>againstthecounterfactual,</sup> privatization has often led to employment increases<sup>at boththeenterprise andindustry</sup> level.

- Fifth, the effects of privatization on income and<sup>wealth distributionaretheleaststudied</sup> aspects of privatization-though considerable<sup>workonthese questionsisnowin</sup> progress.

# **(i) Enterprise performance**

_15._ There is now a wealth of information from a wide<sup>rangeofcountriesshowing that</sup> privatization is associated with improvements in the firm's<sup>financialand operatingperformance.</sup> Following privatization, profitability usually increases,<sup>often substantially,asdoesefficiency</sup> (expressed as real sales per employee), output, and<sup>investment.These resultsareparticularly</sup> robust for privatized firms operating in sectors where<sup>effectivecompetitionreigns, suchas</sup> manufacturing, agro-industry, oil and gas, and mining.<sup>Assummarizedbelow, these outcomes</sup> are seen in cross-cutting studies covering both developed<sup>anddevelopingcountries,aswellas</sup> case studies of developing and transition economies.

# Cross-cutting studies

16. Megginson and Netter (2001) have carried out the most<sup>recentand thoroughsurvey of the</sup> studies evaluating empirically the impact of privatization<sup>onfirm performance.</sup> The most comprehensive of these (Megginson, Nash and van<sup>Randeborgh,1994;BoubakriandCosset,</sup> 1998; D'Souza, Nash and Megginson, 2000) use<sup>a similarmethodologytocomparepre-and</sup> post-privatization financial and operational performance<sup>measures(over threeyear periods)of</sup> large numbers of companies privatized, through<sup>publicshareofferings,indevelopedand</sup> developing countries. As summarized in Megginson<sup>and Netter(2001),these studiesgenerate</sup> similar results. Weighted averages of the mean values<sup>from the studiesshowthat:profitability,</sup> defined as net income divided by sales, increases from<sup>anaverage valueof 8.6 percent before</sup> privatization to 12.6 percent thereafter. Efficiency,<sup>definedasreal(inflationadjusted)salesper</sup> employee, increases from an average of 96.9 percent<sup>intheyear of privatizationtoanaverage</sup> level of 123.3 percent in the post-privatization period;<sup>between79and86percentof firmssee</sup> output-per-worker increases. Most of the studies also<sup>conclude that therewere economicallyand</sup> statistically significant post-privatization increases<sup>in output(realsales),aswellas significant</sup> decreases in leverage. Capital investment spending<sup>slightlyincreased,while employment</sup> changes are ambiguous (see section (iv) below for<sup>moreonemployment). Themainfactors</sup> accounting for the performance improvements are<sup>changes intheincentiveand management</sup> structure coupled with improved corporate governance.