International Research J ournal of Finance and Economics

ISSN 1450-2887 Issue 87 (2012)

EuroJ ournals Publishing, Inc. 2012
http://www.internationalresearchjournaloffinanceandeconomics.com

Financial and Operating Performance of Privatized Firms: A
Case Study of Pakistan


Rehana Kouser
Lecturer, Department of Commerce, Bahuddin Zakariya University, Multan
E-mail: [email protected]
Tel: +92-333-6102638

Toseef Azid
Professor of Economics, Department of Finance and Economics
College of Business Administration, Taibah University, Madinah, Saudi Arabia
E-mail: [email protected]
Tel: +966-598-923431

Karamat Ali
Professor, Ex. Vice Chancellor, Bahuddin Zakariya University, Multan
E-mail: [email protected]
Tel: +92-300-6354608


Abstract

There are many studies for developed and developing countries but none of these
studies has extensively covered the privatization program from structural and contextual
issue of accounting standpoint in Pakistan. The core part of this study is to test the
hypothesis that privatization in Pakistan has increased the profitability, operating
performance, capital investment spending, higher dividend payments and output of the
firms but lower leverage ratios and employment of firms after divestiture. This dissertation
aims to examine and evaluate the financial and operating performance of only those firms,
which were privatized during 1999 to 2005. The closed down units have also been
discussed for their negative impact on economy. The sample consists of 33 companies from
8 sectors. In overall analysis we documented significant increases in financial, automobile,
cement, energy, fertilizer, engineering sectors post privatization performance but ghee and
chemical sectors did not perform well in almost all proxies. In sector-wise analysis the
results are almost similar in financial, automobile and cement sectors. Empirical evidences
show that profitability, efficiency, investment, employment and dividend increases after
privatization. While output and employment decrease in financial, increase in automobile
and cement sector.


JEL Classification Codes: C12, D21, L25, L33

1. Introduction
During the last two decades, privatization has taken the centre stage to remodel the traditional
economies of the developing countries but simultaneously this has posed different contextual
International Research Journal of Finance and Economics - Issue 87 (2012) 91

challenges to emerging nations in their pursuit of economic growth and social development.
Privatization is desirable for a number of obvious reasons, varying from growth enhancement to capital
accumulation and integrating the public sector to global production and investment network that in turn
boost productivity and economic growth.
The worldwide experience has brought another spin to the ways in which we handle the
privatization agenda. In fact, efficiency of private companies harbours great opportunities to induce
changes in the public sector for getting results in terms of effectiveness and efficiency.
Privatization seems to be changes control over public assets with new ideological sense
(Megginson, 2000).
Different researches have conducted to analyse the important magnitude of privatization
including patterns and trends in policies and implications. In the last two decade many countries have
introduced privatization programmes. It is a common observation that SoEs were viewed as highly
inefficient, frequent political intervention and dominated by powerful trade unions. Privatisation
reduced the financial burden of the government, to offer new way to earn revenues and simultaneously
breaking the monopoly by selling shares to a number of parties and restricting union power (Arbomeit,
1986). This source of state funding is considered fundamental when economic policies were geared to
trim down the public sector deficits. Competition sharpens the incentives for management to manage
the firms assets efficiently. Also, where there is a competition, the firms profits reflect and identify
the differences in managerial ability creating a dynamic link between the product and the capital
market. Privatization efforts in both developed and emerging economies result in channelizing
ownership from public to private sector and, consequently, can create the agency problems
When countries intend to reduce the size of its government they go for privatization. It is
evident that the size of governments is too large to induce bureaucratic procedures. The private sector
offers profits margins while public sector focuses on socially sustained goals. So, the up scaling of
market economy and setting the fast pace for growth is a result of shift of focus from political interest
to vested economic benefits of the privatization program (Poole, 1996). It is obvious that downsizing is
the after effect of privatization (Easterly, 2001).
However, privatization does not stand for non-functioning of government, rather a reduced
participation, so in this way it creates an encouraging impact on fiscal policies of the government.
Easterly discusses that privatization is a viable option for making existing debt payments rather future
debts and governmental expenditures. This will lower interest rates and thus leading to increased
investment in the said country. Over-borrowing can be offset by downsizing policy and enhancing tax
circles (Poole, 1996).

1.1. Objectives of the Study
There are many studies for developed and developing countries but none of these studies has
extensively covered the companies in Pakistan. Whatever may be the direct impact on the macro level;
this study will document the changes, improvement or otherwise, at firms level for the privatized
firms in Pakistan. It will consider both the operating and financial performance of former SoEs partial
divestment.
This study will take into consideration almost all the companies privatized, to analyse fully or
partially privatized during 1990 to 2005 in Pakistan. It will take multiple measures for operating and
financial performance of the companies. It will also try to determine whether following the
privatization the firms increases or not their profitability, operating efficiency, capital expenditure,
output of the company, leverage and their output, also testing the effect of privatization policies on
employment structure. The evidence so generated will provide empiricism on to support or to
challenge the benefits put forward by the government in favour of the privatization process.

92 International Research Journal of Finance and Economics - Issue 87 (2012)

1.2. Objectives of the Privatization
Despite these problems and consequences, the objectives of privatization are a prime force to adopt it
as a major macroeconomic level policy in the developing world particularly in Pakistan. The prime
objectives are a dire need to reduce government debt by the sale of state-owned industrial and
commercial units, to improve their profitability and performance, and to make the role of government
that of a facilitator. Other stated goals include the strengthening of capital markets and the securities
industry, increasing local savings, and broadening the ownership of economic assets through publicly
listed companies. Remarkably, each of the governments in Pakistan since 1988 has made privatisation
the cornerstone of their economic program.

1.3. Historical Perspectives of Privatization
1
: International Scenario
Privatization is not simply an economic concept; rather it is more comprehensive in terms of socio-
economic and political philosophy. During the 1970s, Conservative party in UK used privatization as a
slogan. Historical perspective can be explained in three phases.

1.3.1. Phase 1 (1961-1980)
The regulation of the national economy in terms of state ownership and private-ownership became the
imperative programme of discussion worldwide. The first breakthrough came in UK (1984). Thatcher
(Ex. Prime Minister of UK) first used the word "privatization," which is previously introduced by
Peter. F. Drucker, a term "denationalization" (Yergin& Stanislaw, 1998). Privatization compact the
function of the government in the availability of marketed goods and services. Most of the times the
services like health, education, community services and social welfare are provided by the government
in almost all over the world , as a percentage of GDP, all the way through the 1980s and 1990s
(Quiggin, 2002).
Albeit the movement was provoked in United Kingdom but it was also adopted by many other
countries of Western Europe (Burton, 1987). Bangladesh, Mexico, Thailand, South Korea, Malaysia,
Sri Lanka, J apan, Spain, Turkey, Chile, Sweden, Singapore, West Germany, India, Portugal, Australia,
the Philippines, J amaica, Uganda, Pakistan and Brazil are those countries who have taken up
privatization in the fields of telecommunications, banking, railways, car manufacture, electricity
generation, etc but Cuba, China and Soviet Union are now starting the public companies shares in open
markets, (Young, 1987).

1.3.2. Phase 1I (1985-1993)
Subsequently the initial success of privatization program in United Kingdom, it was followed by
Denmark, Italy, Chile, Malaysia, and Singapore. A robust growth was experienced in the form of
limited sales of individual companies. However, the United Kingdom, France has adopted privatization
program in multiple spheres. Additionally, France, Austria, Belgium, Holland, J amaica, J apan, Spain,
Sweden, and the United States implemented momentous privatizations all the way through share issues
during late 1986 and 1987. The case of Nippon Telephone and Telegraph (NTT) is significant in J apan.
Finally, the mid-1990s also witnessed an acceleration of privatization programs in the European
Community. After 1987, the accelerated growth in privatization was witnessed in many countries of
South America, Africa, and South Asia. Selling SoEs and share issues options were widely used in
Bangladesh, Brazil, Chile, Gambia, Malaysia, Mexico, Nigeria, Sierra Leone, Singapore, and
Venezuela (Megginson& Netter, 2001).


1
All the historical perceptive which are included in this dissertation are extracted from the detail research of Megginson,
Nash, and Randenborgh (1994). And similar debates on the history and evolution of privatization which include Yergin&
Stanislaw (1998), Megginson& Netter (2001), Burton (1987), Young (1987), Gibbon, (1997) and (Megginson, 2000).
International Research Journal of Finance and Economics - Issue 87 (2012) 93

1.3.3. Shift Towards Transition Economies
In 1960s, Germany started privatization program by selling public stakes in Volkswagen and the
industrial company VEBA to private investors. Latin America pursued rigorous privatization program
from 1988 to 1993 by spurring market liberalization and economic reform efforts. In the middle of
1990s an immense transfer of public enterprises to private sector started by China, (Cao, Qian,
&Weingast, 1999; Lin & Zhu, (2001); Garnaut, Song, & Yao, 2003).
From 1996 to since 2001 the figure of state ownership decreased by forty percept and rest were
also planned for privatization in future (Garnaut, Song, & Yao, 2003).

1.4. Historical Perspectives: National History
During 70s social democracy model provoked Bhutto to follow the policy of nationalization; the
profit-earning private-sector institutions gave the Pakistani economy a good shake. The situation was
made worse by declaring some of the business areas out of bond for private investors. However, the
government in 1989 initiated the process of divestiture of government holding in SoEs by first public
offering partial government holding in PIA and to organize this process, the Privatization Commission
was formed on J anuary 22, 1991. Furthermore, in the start the privatizations of industrial concerns was
the prime objective but later on in 1993 other sectors such as financial, engineering, automobile,
energy, cement, ghee, fertilizer and chemical were also included in its scope.Sixty six privatization
transactions were carried out from 1991 to 1994, which reached to 92 by end of 1997, 106 by end of
2000 and 129 till 2005.
In late 1980s as nationalization policy was not yielding expected results and moreover, there
was an international gesticulate of privatization round the world. This caused inefficiency and not has
of managerial control. This burden had started showing multiplying impacts over the period of time. A
consensus was emerged that the state is not the best entrepreneur for such industries because by then
most of SoEs had started showing negative characteristics like management incompetence, over-
staffing, over-branching, over-purchasing, over-investment, poor level of service, deterioration in
quality of goods, corruption in purchases, hiring practices and privileges-abuse, inappropriate
investments and large debt burden and financial losses.
During the Zia regime, initial steps were taken by reinstating the ownership of Nowshera
Engineering and Hilal Ghee Mills in late 1970s. In addition, the control of the Ittefaq Foundry was
given to the Sharif family. Many financial authors consider that the procedure of privatization was
bolstered in 1991 through Privatization Commission of Pakistan has started.

1.4.1. Benazir Bhutto's Regime (1989-1990)
During April 1989, Benazir Bhutto engaged Mr. Rothschild & Sons was hired to prepare a feasibility
report to identify the units for privatization in Pakistan.14 units were identified and two-tier
privatization strategy was recommended. But the government could not carry out its intended plans
except privatization of 10% shares of PIA. The Benazir government was dismissed in 1990 by giving
way to Nawaz Sharifs first government.

1.4.2. Nawaz Sharif Regime (1990-1993)
During this phase, the government facilitated privatization process on larger scale and 1974s Act was
amended in 1990, empowering the Federal Government to sell all or any part of the share capital of
Nationalized Commercial Banks (NCBs.). Privatization Commission was established on J anuary 22,
1991 to identify the enterprises to be privatized and to make recommendations on how this process
should take place. During March and J uly 1991, bids were invited for the sale of 25 units while during
August 1991 the plan was chalked out to sale 100 units that is the single biggest lot offered to be
privatized. GoP accepted 26 bids among 235 bids for the sale of 81 units. At this time of dismissal of
this government the total number of completed transactions was up to 1993, 2 banks, 68 industrial units
and 10% shares of Sui Northern Gas Pipeline were privatized. Many banks were privatized including
UBL, Allied Bank, Bankers Equity Ltd. Habib Bank Ltd and Habib Credit & Exchange.
94 International Research Journal of Finance and Economics - Issue 87 (2012)

Later on after privatization Habib Credit & Exchange, a subsidiary of HBL was re-named Bank
Alfalah. The benefits of privatization were experienced in the banking sector that was previously
dominated by public sector and portrayed by high intermediation costs, over-staffing and over-
branching, big portfolio of non-performing loans, poor customer services, undercapitalized, poorly
managed / narrow product range, political involvement in lending, loan recovery & appointments.

1.4.3. Benazir Bhutto's Privatization (1993-1996)
During her second tenure, Benazir Bhutto espoused privatization as a prime agenda focusing on the
sale of large scale units like Water and Power Development Authority (WAPDA), Pakistan
Telecommunication and banks. The important milestones were 20 industrial units, one financial
institution; KotAdu unit was major privatization and 12% shares of Telecommunication Company of
Pakistan. GoP was intending to sell SoEs to shed off government debt. This is the optimal solution to
reduce the debt which units were responsible for (Paula, 1994).

1.4.4. Nawaz Sharif Government (1996-1999)
During his 2
nd
term, Mian Nawaz Sharif adopted a professional approach to revamp privatization
program by hiring highly paid professionals for reengineering and restructuring of those units who
were to be sold. This was done with 210 million US dollars given as a financial aid for restructuring
from the World Bank. The prime focus of restructuring was on reducing the number of employees,
launching early retirement schemes and golden shake hand schemes and introducing electronic banking
so a new breed of bankers were required for this.

1.4.5. General Musharraf (1999 to 2009)
During the regime of President General Pervez Musharraf, economic reforms were given primary
importance. On September 28, 2000, privatization policy of GoP was revamped by strengthening its
legal structure and ordinance 2000 was formally declared. In this new ordinance of Privatization
Commission, independence and accountability and transparency were the cornerstones. Another
initiative was taken at governmental level in November 2000 to announce new privatisation ministry
which was responsible for facilitating transactions and this ministry is known as Ministry of
Privatisation and Investment. The performance at a glance is as:
97.259 billion rupees were generated for debt retirement and poverty alleviation
23.301 billion rupees were paid to DFI/owners for their shares sold in 2005-2006.


2. Literature Review
Literature proves that normally the state-owned enterprises are persistently unprofitable. Improvement
in government revenues, increasing capital ownership and the very important factor performance of
SoEs is the source of inspiration for privatization.
Many politicians are of the view that it is not the job of the government to run all types of
industries, government should concentrate only some very crucial and specific nature business like
steel and defence production, (Megginson & Netter, 2001).
People ask this question that why the government wants to own industries and why does it want
to privatize them afterwards. The government own companies to get better control and achieve their
objectives. The rationales behind that entire are, they have different objectives as compared to the other
business at least in part because their major objectives are maximizing employment, developing
backward areas and other social aspect. In order to achieve those objectives, the government has to
provide some non-market benefits like subsidies and implicit guarantees to meet operating losses.
A number of empirical studies show significant positive results for the firms after privatization
like Megginson, Nash, & Randenborgh, (1994) did empirical analysis about comparison of the pre and
post privatization performance of 61 companies from 18 countries which include both developed and
underdeveloped, belong to 32 different industries. They found persuasive evidence that the mean and
International Research Journal of Finance and Economics - Issue 87 (2012) 95

median profitability, real sales, operating efficiency, and capital investment spending of sample firms
had increased significantly in their analysis and this change occurred in both statistical and economic
terms) after privatization according to their study. In addition, they documented significantly lower
leverage ratios and higher dividend payments of firms after privatization. However, they observed no
fall in the employment level after privatization, rather they have proven an increase in mean (median).
Another comprehensive research on the same issue is examined by Boubakri, & Cosset, (1998) who
studied the same change in the financial and operating performance of seventy nine companies from
twenty one developing countries that practiced complete or partial privatization for the period starting
from 1980 to 1992 and have tested accounting performance measures. Their results are same as
previous research motioned above and show significant increases in profitability, operating efficiency,
capital investment spending, output, employment level, and dividends and their results strengthen the
previous study done by Megginson, Nash, & Randenborgh, (1994). A further study conducted by
D'Souza, & Megginson, (1999) gives valuable insights into the possible methodological and
ideological changes that should be considered for future perspectives. This empirical work also
compares the same financial and operating performance of privatized and includes the huge data from
twenty eight industrialized countries eighty five companies which were privatized through public
share offerings and their findings strongly recommend that privatization capitulates significant
improvements in the performance, profitability, operating efficiency, capital expenditures, output, and
dividend payments of the firms but it decreases employment and leverage insignificantly.
Wei, Varela, D'Souza, Hassan (2003) conducted the same study in China and analysed two
hundred and eight companies pre and post privatization financial and operating performance during
the study period 1990-97 and their findings show momentous progress in real output, real assets, and
sales efficiency, and significant declines in leverage in those firms who were following privatization
but no significant change in profitability. Similarly, different empirical evidences from China suggest
that reorientation of the contents of property allocation is the main determinant of enterprise
restructuring that can capitulate substantial benefits even without putting thrust on privatization. Thus,
economic reforms along with privatization will yield significant performance improvement. Hardly any
study signifies to answer this question and perhaps most surprisingly it would not be so easy to develop
such evidence but, in fact, the private sector is effective in solving the problem of externalities though
costless bargaining driven by individual incentives.
Several of the other researchers observed the different issues related to China's privatized firms
like Gul (1999) studied and concluded that how SoEs behaviour is positively related to growth
opportunities to be negatively related to debt financing and dividend policy and Qi, Wu, and Zhang
(2000) documented that after privatization, the return on equity positively related to institutional
ownership and negatively related to state ownership but as compared to this Wei and Varela (2003)
tested a negative relationship between Tobin's q and state equity ownership and their study was also
related to the China's newly privatized firms.
Egypt also initiated a privatization program in 1991 and used it as a part of its economic reform
program; Omran (2004) examined fifty four divested firms with a matching number of SOEs, and
concluded that both types of firms experience significant improvements in profitability and efficiency,
and significant declines in employment and debt after privatization.
La Porta, & Lopez- de- Silanes (1999) did another study by using data firms privatized in
Mexico for during the period starting from 1983 till 1991 and found convincing evidence that
profitability, real sales, operating efficiency, and capital investment spending of sample firms increases
significantly after privatization. According to their analysis they also documented significantly lower
leverage ratios and higher dividend payments of firms after divesture. Furthermore, they also analysed
to what extent the increase in profits after privatization comes from better incentives and from the
political position of privatization, and how much increase in profit comes at the cost of the society.
This concept is a part of the social view of privatization.
There are a number of firms who have great improvements in profits, but this is not due to
increase in efficiency rather due to increase in prices. As the case of Pak Arab Fertilizers in Pakistan
96 International Research Journal of Finance and Economics - Issue 87 (2012)

earned huge profits due to layoffs and increase in prices of fertilizers but efficiency is least concerned
regarding the case in point. This gives us important social loss.
A supplementary study documented by Bhaskar & Khan (1995), who use firm-level data from
jute mills from Bangladesh and analyze the effects of privatization upon employment and output and
their findings evident that privatization has reduced employment significantly, while the reduction in
output is statistically insignificant. The breakdown of employment reduction by category of employee
is particularly noteworthy. They also observed that normally the reduction in employment was
primarily directed toward clerical and managerial employees and define the category of workers like
white-collar workers and manual workers and prove that in privatized firms the reduction in number of
employees is to a lesser extents towards permanent manual workers.
It is the general perception that SoEs can invest more than private firms, because nationalized
companies provide the government an investment vehicle, the government has the resources and
borrowing power from their institutions.
There are so many reasons that why people expect that privatization will improve the
companies spending (capital expenditure) after privatization. First, companies following privatization
have better option to use private debt and particularly equity markets as compared to most of the SoEs.
Because then they become registered in the stock exchange.
Another view of the picture is that if privatization occurs along with the deregulation and the
starting of new market, then these firms will have to invest more in the businesses in order to enter in
the competitive markets as a private company. So privatizations will very large investment spending
needs in order to become competitive with other private firms.
SOEs are normally labour intensive in their production processes. The power of politicians,
labor unions, and other interest groups leads towards SoEs employees wealthy and the capital reduced.
Besides this, the need of finance often leads firms to cut their routine maintenance which must be
improved after privatization.
Another aspect is that the when a SoEs is privatized then the governments power towards that
company is reduced and its ability to bribe or pressurize mangers for excessive production of attractive
but low quality goods is also decreased.
Now, after privatization, due to the open market competition, the firms have to struggle
extraordinary and forced to produce quality products for their survival such as introduction new
products and services, new markets, and follow acquisitions both at home and abroad. Privatization
promotes entrepreneurship.
One of the reasons for privatization is the expectation by the governments and other people that
due to improved incentives, more flexible financing opportunities, improved competition, and better
range for entrepreneurial scheme, real sales will increase after privatization.

2.1. Consequences and Cost of Privatization
Current empirical studies which mainly emphasised to know the consequences of privatization on
monetary, operational and working performance, workforces, fiscal balances and distributional equity
principally authenticates the analysis that only those firms who belongs to middle income group
counties and operate in a competitive market structure has positive impact of privatization. Whereas its
impact is not easy to judge that how many affects it has under which situations. However, the fact
indicates that the improvements in efficiency are possible even with an only unpretentious decline in
labour but certainly it needs some requirements.
A significant limitation of these studies they always consider and measure the privatization
effect on the basis of their pre and post privatization analysis but did not consider the growth rates of
the economy and industry because ultimately effect the organizations and if we consider both the
dimensions change in performance and growth effects of privatization on companies performance, it
will be helpful for us to resolve many issues.
International Research Journal of Finance and Economics - Issue 87 (2012) 97

An imperative gap in most of the researches conducted to know the impact of privatization
emphasised to measure the performance exercised be liable to be affected by issues other than
privatization, and increase the importance of its major attribution problems. Therefore, people normally
misperceive and consider all the collective measures which are taken for restructuring the organizations
in the pre-privatization era. They normally confused all these with the special effects of privatization,
(Christopher, Cavendish and Mistry, 1992).
Similarly, trade policy reform, domestic price liberalization and privatization become the route
cause for the success of private sector and make it more productive. The same strategy is adopted by
the developing countries. Capital market development, a large amount from financial liberalization and
broader economic deregulation, favourable microeconomic efficiency gains become the cause of
success and it happens due to the changed macroeconomic framework. So we can conclude the major
parameters and conditions for growth of privatization are the country conditions and market conditions
(Kikeri, Nellis, & Shirley, 1994).
But open trade regime, a stable and predictable environment for investment, a well-developed
institutional and regulatory capacity is the key issues in country which serve as a prerequisite for the
success of privatization besides the market conditions which is also an important determinant. But the
most important thing is in the success determinants depends on the transparency of the transaction, if
the firm manufactures some consumable item operate in a competitive environment then its efficiency
will be automatically improved subject to the condition that privatization activity must be transparent
same is true for industrial goods but all those SoEs which are privatized and work as a monopolies face
more complex and the regulatory capabilities of the country turn out to be a critical issue.
In developing countries where institutional and regulatory capacities are deteriorating the
privatization of utilities and natural monopolies is most complicated because the non-existence of some
more important economic conditions, development of capital markets, competitive goods and services
markets, and efficient regulatory capacity are the major causes which makes privatization complicated
and difficult.
It is the normal fear of all governments contemplating privatization programs, that efficiency
and profitability will be improved and targets can be achieved only at the cost of large-scale job losses.
First, there are several real examples of large-scale job losses in the firms following privatization. As
examples, BT, British Gas, St. Gobain, and NTT all lost at least 5,000 workers after privatization.
Finally, where privatization coincides with industry deregulation the result is frequently to put
severe competitive cost pressures on corporate managements, who respond by pressuring their work
force either for wage concessions, or work rule changes, or both.
Another very important incident occurred when Argentina's national rail company fired its
approximately seventy nine percent workers arguing that it is the part of their restructuring of railroad.
An additional study in Mexico was conducted which examine the behaviour of two hundred privatized
companies and documented that half of all workers lost their jobs in the divested firms. Besides all
these some of the researches documented unchanged employment in privatized firms, (Megginson,
2000).
Similarly, those economies that have a low-income countrys economic structure face major
constraints on privatization which comes from these situations and not a single research has examined
the before and after effects of privatized companies performance who can match the results of middle
income with low-income economies.


3. Research Methodology and Testable Predictions
The data collection for this research started in 2004 for all the firms which were working under the
control of Ministry of Production (MoP)
2
and Ministry of Finance (MoF)
3
before their privatization.

2
For more information about Ministry of production of Pakistan visit <http://www.moip.gov.pk/>
3
For more information about Ministry of Finance visit: <http://www.finance.gov.pk/>
98 International Research Journal of Finance and Economics - Issue 87 (2012)

The pre-privatization data of industries for year, 1990-2005 was mostly available with Expert
Advisory Cell (EAC). Experts Advisory Cell is a source of all the information on operational, financial
and profile about the performance of public sector industries under Ministry of Industries &
Production, whereas data of Ghee industry was collected through Ghee Corporation (GC) and
Securities and Exchange Commission of Pakistan (SECP)
4
. The post privatization data on the
performance and resource generation by disinvested/privatized entities was collected from respective
corporations, individual units, SECP, AKD Securities
5
, and Karachi Stock Exchange (KSE)
6
etc. It was
a challenging task to retrieve performance results, especially sales and tax related information from the
disinvested firms and it were worsened after the current surveys on tax by the government. However,
every possible effort was made to acquire maximum information from maximum number of
disinvested industries.
In order to access the post privatization financial data regarding the organizations we collected
their annual reports from the library and record room of Karachi Stock Exchange (KSE) but here we
found the data of those companies which were listed in KSE collect some of the data from the websites
of the sample companies as well.
The library of State Bank of Pakistan was rich enough in financial sector data which they made
available for the research.
This research aims to study the use of privatization program in a strategic context by GoP to
uplift the economic growth performance. This study starts to compare the pre- and post-privatization
data of 129 companies from 8 sectors in Pakistan, but we limit our sample to the companies whose
ownership has been transferred (government shifts ownership if 26% shares are privatized). Only 33
companies complete data was available to conduct this research out of total 129 units which were
privatized during the above mentioned period whereas; 86 companies were excluded from study, as
five companies were reported in heavy losses thus considered as outlier, 51 units were closed after
privatization and data of 20 companies was unavailable.
The pre-privatization data of 10 companies was available but post-privatization data was not
there. Similarly, post-privatization data of two companies was available but pre-privatization data was
missing. Three companies merged and were renamed so their parent companies are included in
analysis. The closed down disinvested units have also been discussed to measure their impact on
economy. Thus sample consists of thirty three companies from 8 sectors. Three companies merged and
were renamed so their parent companies are included in analysis. The closed down disinvested units
have also been discussed to measure their impact on economy.
Thus sample consists of thirty three companies from 8 sectors.

Table 1: Details of sample companies

Description No.
Complete and included in analysis 33
Deleted due to heavy losses: outlier 5
26 % ownership is not transferred 5
Data is unavailable 20
Not included; closed after privatization 51
Post-privatization not available 10
Pre privatization data not available 2
Merged and renamed 3
Total 129


4
For additional details about Security Exchange Commission of Pakistan visit:
<http://www.secp.gov.pk/annual_reports.asp>
5
See details about AKD Securities <http://www.akdsecurities.net/>
6
For More information about Karachi Stock Exchange visit: <http://www.kse.com.pk/>
International Research Journal of Finance and Economics - Issue 87 (2012) 99

Our research disqualified 20 firms from this analysis which are like newspaper, roti plants, and
utility stores firms etc. because of the non-availability of the data. We also exclude 51 units which
closed after privatization.
Three companies merged in others. Some of the elimination was made only due to the reason
that data (pre or post privatization) was unavailable in spite of countless efforts. Moreover, five
companies were partially privatized as 26 % shares were not transferred.
Our study sample consist of 33 units out of 129 in total companies and this is approximately
more than 42 % of total transaction if we exclude the closed.
This study entails comparison of financial and operating results in respect of disinvested units
during pre and post privatization period. This study measures pre and post-privatization accounting
performance of privatized company during 1990 to 2005. The total time period for the analysis is at
least seven years data for each firm is included in the study.
At the first stage, all empirical proxies for each company were calculated for a period of seven-
year which include three years before and three years after privatization and obviously the one year of
privatization as well. Then the means of each variable for the pre-privatization (years -3 to -1) and
post-privatization (years +1 to +3) periods were computed but only those companies with observations
from at least year -3 to year +3 were included in this study we compute different ratios for pre and post
privatization data and work out the difference in ratios to analyse the performance of companies and
sectors. First, we calculate the mean and median values of the each company for the three-year periods
prior and following to privatization. Secondly, we calculate the mean and median change in the
proxys value in the same pattern (after versus before privatization). Thirdly, a test of significance like
t-test for the change in mean values is applied to ensure whether the results are as which we have
predicated or not.
Finally, in sales efficiency apply inflation-adjusted sales and GDP deflator adjusted sales and
compute these two figures by dividing these two adjusted sales to the number of employees each year
so in this way net income efficiency and real sales are computed in same manner.
When we use t-test modelling on data , the year of the privatization, was excluded from the
analysis as it include both the public and private ownership phases of the firm. The date on which
government sold a certain amount of shares for the first time is considered the date of privatization.
In our analysis for some hypothesis 1,2,3,4 and 6 we use more than one proxies and where ever
in all cases we use two or more proxies, the proxy which is listed first are considered the one to be
considered our preferred and most reliable empirical variable because it uses a current measure in
either the numerator or the denominator, or both.
When we use t-test modelling on data, the year of the privatization, was excluded from the
analysis as it include both the public and private ownership phase s of the firm. The date on which
government sold a certain amount of shares for the first time is considered the date of privatization and
for the purpose of t-test model the year of privatization which is mentioned as year 0 is excluded. Then
t-test was applied on mean value to determine the significance of analysis after considering the p-value
that tells whether the impact of privatization on SoE is significant or not and the level of intensity as
well.
Megginson, et al. (1994); DSouza, & Megginson, (1999); Boubakri, & Cosset, (1998); Wei, et
al. (2003); DSouza, et al. (2001); Bortolotti, Fantini, & Scarpa (2000) have used almost same
methodology in their researches. The study covered eight sectors of Pakistan economy i.e. financial,
automobile, cement, chemical, energy, engineering, fertilizer and ghee and the analysis was carried on
three levels
1) Overall country performance
2) Sector performance and

100 International Research Journal of Finance and Economics - Issue 87 (2012)

3.1. Hypotheses
It is generally expected that privatization will increase profitability, operating efficiency, capital
expenditure and output, increase or decrease the level of employment, and leverage and improve the
pay-out to the shareholders. Our hypotheses in this research are mentioned below.
Privatization will:
1. Increases a firm's profitability
2. Increases its operating efficiency
3. Increases its Capital expenditures
4. Increases its output
5. Decreases employment
6. Decreases leverage
7. Increases dividend pay-outs
Two symbols, A for after privatization and B for before privatization is are used in the study as
used by other researchers to calculate the mean and median for different time periods.


4. Empirical Results
Several studies as mentioned above such as Megginson, et al. (1994), D'Souza, & Megginson, (1999),
Boubakri, & Cosset, (1998), Wei, Varela, D'Souza, Hassan, (2003) and D'Souza, Megginson, & Nash,
(2001) have used the same proxies for analysis which we have adopted in this study and bring to a
close almost similar findings.
In order to examine our hypothesis, first of all we calculated empirical proxies for each
company for a seven-year period which consists of three years for before-privatization and three years
for post-privatization. We then calculate the mean of each variable for each firm over the pre- and post-
privatization here we mean pre-privatization: years 3 to 1 and post-privatization: years +1 to +3. For
all firms, the year of privatization (year 0) includes both the public and private ownership phase of the
enterprise. We therefore exclude year 0 from our t-test from mean calculations. The condition for any
company to be included in the sample is that it must have at least two observations, available for each
window and the government must have transferred 26% shares of that company.
We use mini tab software to calculate mean, median and apply t-test on the data, and for the
purpose of segregation in pre and post privatization data we use two symbols, same as used the one by
Megginson, Nash, & Randenborgh, (1994), in the predicted relation column A and B which stand for
after and before respectively. Here we explain preferred and alternative empirical proxies of
profitability, operating efficiency, capital expenditure, and changes in output, employment, leverages,
and changes in dividend payments and the preferred proxy is listed first and the alternative, if any, is
listed later in the tables of analysis and we call them preferred proxy because their result is more
reliable.

4.1. Profitability
Almost all researches concluded that the profitability of the firm is positively correlated with
privatization. It is evident after many empirical analysis that as the governments expected, profitability
increases significantly after privatization according to RoS, RoE and RoA. In our results we primarily
rely on RoS (our benchmark) which is the strongest of all and while discussing the results, we choose
to focus on the first proxy (RoS) as it is less sensitive to inflation and accounting conventions than the
two other profitability ratios.
Table include the performance measures of our overall 100% sample which includes the eight
sectors data of 33 companies after excluding the five outliers. Six profitability ratios, that is return on
sales (RoS) before and after tax and return on assets (RoA) before and after tax increase significantly
after privatization but increase in return on equity (RoE) is less significant.

International Research Journal of Finance and Economics - Issue 87 (2012) 101

Table 2: Descripting of Proxies used in the Study

Characteristics Proxies Predicted Relationship
Profitability Return on Sales (RoS) =EBIT Sales RoS
A
>RoS
B

-do- Return on Sales (RoS) =Net Income Sales RoS
A
>RoS
B

-do- Return on Assets (RoA) =EBITTotal Assets RoA
A
>RoA
B

-do- Return on Assets (RoA) =Net IncomeTotal Assets RoA
A
>RoA
B

-do- Return on Equity (RoE) =EBIT Equity RoE
A
>RoE
B

-do- Return on Equity (RoE) =Net Income Equity RoE
A
>RoE
B

Operating
Efficiency
Sales Efficiency (SALEFF) =Sales Number of Employees SALEFF
A
>SALEFF
B

-do- Net Income Efficiency (NIEFF) =Net Income Number of Employees NIEFF
A
>NIEFF
B

Capital
investment
Capital Expenditures to Sales (CESA) =Capital Expenditures Sales CESA
A
>CESA
B

-do-
Capital Expenditures to Assets (CETA) =Capital Expenditures Total
Assets
CETA
A
>CETA
B

Output Real Sales (SAL) =Nominal Sales Consumer Price Index (CPI) SALA >SALB
-do- Real Sales (SAL) =Nominal Sales GDP Deflator SALA >SALB
Employment Total Employment (EMPL) =Total Number of Employees EMPL
A
<EMPL
B

Leverage Debt to Assets (LEV) =Total Debt Total Assets LEV
A
<LEVB
Long-Term Debt to Equity (LEV2) =Long Term Debt - Equity LEV2
A
<LEV2B
Dividends to Sales (DIVSAL) =Cash Dividends Sales DIVSAL
A
>DIVSALB

As far as the mean (median) of RoS, it improves significantly from 0.0733 (0.0522) before
privatization to 0.1509 (0.0791) after privatization. The same trend can be seen when we use the
denominator earnings after tax. So we can say that privatization increases the profitability which is
evident from the results. The mean (median) RoA before tax increases significantly from 0.02113
(0.0948) before privatization to 0.3263 (0.0938) after privatization while RoE changes positive after
privatization but is not very much significant i-e from -2.52 (0.029) before privatization to 0.86 (0.029)
after privatization which showed improvement in post privatization performance of the firms.
However, in our detail analysis, we conclude that different sectors behaviour is different in the
first hypothesis which is not similar to overall results.Now a detailed and comprehensive sector wise
analysis is at hand.
In Appendix-A, Table 2 we explain the analysis of financial sector and here it is necessary to
know at the beginning of the 90s, the banking sector in Pakistan was dominated by the public sector
banks which were characterized by high Intermediation Costs, over-staffing and over-branching, huge
portfolio of nonperforming loans, poor customer services, undercapitalization, mismanagement,
excessive Interference in Lending, poor loan recovery &human resources malpractices.
Tables report the data analysis of the financial sector. Six banks are included in the analysis as
Habib Credit & Exchange (HC&E) was renamed after privatization as Bank Alfalah so its pre-
privatization data is available with the name of (HC&E) and after privatization as Bank Alfalah.
Financial sectors data was 100% accessible and included in analysis. The mean (median) of RoS
increases significantly from 0.0851 (0.0879) before privatization to 0.2741 (0.1807) after privatization.
The same trend we can see when we use earnings after tax which is from 0.0117 (0.0507) before
privatization to 0.1833 (0.2359) after privatization. An improvement in profitability is achieved after
privatization. The mean (median) RoA before tax increases significantly from 0.00776 (0.00649)
before privatization to 0.01443 (0.1486) after privatization on the other hand ROA after tax is also
increases significantly from 0.00149 (0.0341) before privatization to 0.00973 (0.1051) after
privatization RoE changes positive after privatization but not very much significant and i-e from -.17
(0.15) before privatization to 0.493 (0.0261) after privatization. So it is evident that privatization
improve the financial sector.
The privatization initiative in banking sector was singled out for its success. The major benefits
resulted from privatization are: more efficient banking services, lower transaction costs, a wide range
102 International Research Journal of Finance and Economics - Issue 87 (2012)

of corporate and consumer services, removal of the additional equity requirement, reduction in political
lending, improved regulations and competent management.
Hence privatization has shaped significant improvements in the financial sector of Pakistan.
The automobile sector is presented in tables. A total of seven companies were privatized during
research period out of which 5 are included in the analysis. National Motors data is excluded from this
sector analysis as an outlier and Naya Daur Motors was closed after privatization. The mean (median)
of RoS increases significantly but not very high as it changes from 0.061 (0.0367) before privatization
to 0.62 (0.0425) after privatization. The same results can be observed when we use earnings after tax
which is from 0.0218 (0.0234) before privatization to 0.0426 (0.0273) after privatization. An average
improvement in profitability is achieved after privatization. The mean (median) RoA before tax
increases significantly from 0.0492 (0.0388) before privatization to 0.067 (0.0815) after privatization.
On the other hand RoA after tax also increases significantly from 0.0218 (0.0212) before privatization
to 0.0422 (0.0416) after privatization. The RoE changes negative after privatization but insignificant,
which was from 0.137 (0.228) before privatization to -0.64 (0.026) after privatization. Privatization
increased profitability in automobile sector but not much significant.
Tables present the cement sector analysis. 14 companies were privatized till 2005 which were
previously included in STATE CEMENT CORPORATION OF PAKISTAN out of which 2 companies
named White cement and Pak cement were merged in Maple Leaf cement. So these two companies
pre privatization data was merged in Maple Leaf Cement and Wah cements data deleted as outlier.
The overall profitability trend in cement sector is positive. The mean (median) of RoS before tax
increases significantly as it changes from 0.0476 (0.0481) before privatization to 0.1847 (0.2116) after
privatization and the same trend is presented in RoS after tax. The net increase in RoS before tax
increase from 0.1371(.1635) which evens more than after tax mean (median) is 0.1239(0.132). The
same increasing trend can be observed in remaining two proxies RoA and RoE. The net increase in
mean (median), RoA and the RoE before tax is 0.0906 (0.0897), and after privatization is 0.0679
(0.0648), we can witness a similar outcome after sale as well (see Tables).
Thirteen companies were privatized in the chemical sector but post privatization data was
available only for 4 companies and out of which 3 are included in analysis which are presented in table
5. Pak PVC Ltds data is excluded from this analysis as an outlier but still a negative trend is observed
in chemical sectors all 6 proxies i-e RoS, RoA and RoE before and after privatization. The mean
(median) change in RoS, RoA and RoE before tax is -0.0574(-0.0457), -0.0502 (-0.0494) and -0.1257
(-0.1539) respectively. A similar trend is observed in after tax results in post privatization performance.
In the energy sector 6 companies were privatized during the study period. KotAddu Power
Company is registered in KSE but its pre privatization data was unavailable as 3 years post
privatization data was necessary to compare companys performance. Similarly data of Karachi
Electric Supply Corporation (KESC) was also unavailable so we include 4 companies data in our
analysis. In RoS before tax (BT) the mean (median) changed from 0.1873(0.0843) to 0.2146(0.1336)
and after tax were 0.1272 (0.0734) to 0.1638 (0.1077) showing a positive increase. The other two
proxies also show the same trend, as in RoA and RoE the increase in results can be observed in
0.1039(0.0473) to 0.1248(0.069) and 0.3213(0.2383) to 0.3667(0.2924) respectively and similar trend
is analyzed in after tax data.
In tables, engineering sectors results are presented where overall increase in post privatization
can be observed. A total of 7 companies were privatized in this sector and only two companys 100%
data was gathered for analysis, out of which one company, Metropolitan Steel Mills Ltd. was declared
as outlier so only one company Quality Steel was included in this analysis. The RoS and RoA
increased significantly but not RoE.
Tables shows the fertilizer data. Three companies were privatized and out of which Pak Saudi
Fertilizers Limiteds data was unavailable, so two companys data is included in this analysis. The first
two proxies, which is RoS before and after taxes are showing a positive change and increase in
profitability after privatization but the remaining 4 RoA and RoE before and after tax were negative.
International Research Journal of Finance and Economics - Issue 87 (2012) 103

As mentioned previously, where there is more than one proxy in any analysis, the first one is
considered preferable. Hence, RoS provide more realist results.
Twenty four companies were privatized in the ghee sector, most of which are closed. Only five
companies post privatization data was available with due efforts. Fazal Vegetable Ghee data was
considered as an outlier company and the remaining 4 are included in the analysis. The whole ghee
sectors post privatization decreased in the sample period. All the six proxies show the decline in
profitability after privatization.
Finally we can say out of 8 sectors, only ghee and chemical sectors did not perform well after
privatization but financial, automobile, cement, energy, fertilizer, engineering and fertilizers post
privatization performance has significantly improved.

4.2. Operating Efficiency
Normally government privatize SoEs with the hope that when the company will enter market
competition, it will employ their human, financial, and technological resources more efficiently and it
is necessary for their survival as well. Operating efficiency can be judged by two variables: sales
efficiency (SALEFF) and income efficiency (INEFF). It explains the sales per employee and earnings
before interest and taxes (EBIT) per employee respectively and normally sales efficiency is more
preferred to compute the operating efficiency of the firms.
In order to calculate the efficiency of the firms we did not employ inflation-adjusted sales, we
use inflation adjusted sales in output analysis only which shows imperative increases in the firms after
privatization.
The two proxies for efficiency, namely sales efficiency and net income efficiency (net income
per employee (NIEFF)) as mentioned in tables show a highly significant improvement (at 5 percentile
level). For example, SALEFF increases mean (median) from 2954(1017) to 7500(1983) after
privatization and NIEFF -1415 (404) to 36(123). The overall results suggest that privatization
significantly improves their operating efficiency in Pakistan which accomplishes the government
objectives of starting privatization program in country. In SALEFF, t-test value is -2.75 and P-value is
.0011 and in NIEFF it is -1.99 and 0.049.
Financial sectors performance also improves when we calculate the mean and it is from 719 to
1755 in SALEFF and 55.9 to 342 in NIEFF and improves significantly as its t-value is -.0.06 and -.2.88
respectively. The median values, however shows a decrease in sales SALEFF but increase in NIEFF.
But overall, the financial sectors operating performance have augmented after privatization.
The operating performance of the automobile sector also significantly improved in post
privatization results. The data shows the net increase in mean (median) of SALEFF is 2170(1383)
which comes from the pre privatization results 1630 (1616) to 3737 (2999) post-privatization. And the
same significant trend can be observed in NIEFF data presented in tables.
Similarly, the cement sector also shows a net increase in progress after privatization and the
results of this sector are also highly significant. There is an increasing trend in mean (median) of
SALEFF from 626.7 (538) to 9323 (1428) after privatization. Same increased performance results can
be observed in NIEFF data in tables which is given in Appendix-.
The chemical sector show significant increase in operating performance after privatization as
mentioned in table. But in this sector SALEFF shows highly significant results as compared to NIEFF.
Because in NIEFF proxy, the mean shows improved performance but median shows declining results.
The mean (median) improve from 642.7(620) to 1044 (981) in SALEFF and 49.5(37.6) to 35.1 (52.4).
But as in our analysis our preferred proxy is the first one so we can say that the overall operating
performance of privatized firms has increased.
Energy sector operating performance change is highly significant in NIEFF but moderate in
SALEFF. As data in different tables present positive change in mean and median after privatization.
The t-test value from mean is -1.79 in NIEFF and -1.32 in SALEFF which shows .092 and .21
significance at 5% confidence level.
104 International Research Journal of Finance and Economics - Issue 87 (2012)

In engineering, fertilizer and ghee sector operating performance of privatized firm is
insignificant as predicted from t-test of mean. Although there is an increase in the firms operating
performance after privatization in all the above mentioned sectors in Pakistan but that change is not
much significant.
So we can conclude that the operating performance of privatized firms significantly increased
in overall, financial, automobile, cement, chemical and energy but insignificant in engineering,
fertilizer and ghee sectors.

4.3. Capital Expenditures
Boycko, Shleifer, and Vishny(1994) argued that in order to increase employment and social objectives
in the country, the government must use all its resources to mobilize high output goods companies for
example weaponry of doubtful economic value and subsidize their inefficiencies.
In order to judge the investment intensity we compute two proxies, capital expenditures divided
by sales (CESA) and capital expenditures divided by total assets (CETA).
The above mentioned two proxies, specifically, capital expenditures to sales (CESA) and
capital expenditures to total assets (CETA), explain an imperative increase in all firms empirically
evident from the data. The mean (median) change in full sample is increased from 3.07(0.03) to10.32
(0.05) in CESA and 0.256 (0.029) to 0.814 (0.036) in CETA which show net change 7.25(0.02) -1.28
and -1.29 t-test values at 5 % confidence level.
But if we analyze the trend in individual sectors, financial, automobile, energy, engineering,
fertilizer and ghee sectors although has improved their capital expenditure after privatization but the
improvement in cement sector is highly significant.

4.4. Changes in Output
In order to test these predictions and to check our hypothesis we compute average inflation-adjusted
sales and GDP deflated sales.
In this analysis real sale refers to deflating sales using the appropriate consumer price index
(CPI) values, and then normalizing them to equal 1.00 in years. Each year we divide nominal sale to
CPI and GDP deflator and see the trend of data after privatization. Because it happens for some
companies that after privatization one reason or other their product prices increases sharply as in case
of Pak Arab Fertilizer in Pakistan. The major contributions in profits were due to increase in prices as
compared to increase in sales volume. So, the level of real sales is improved after privatization
significantly.
Different researches presented by Megginson, Nash, & Randenborgh, (1994), D'Souza, &
Megginson, (1999), Boubakri, & Cosset, (1998), Wei, Varela, D'Souza, Hassan, (2003) and D'Souza,
& Megginson, & Nash, (2001) have used this proxy in order to measure real sale (Sale / CPI) but in our
analysis we consider the real sale after eliminating the impact of inflation as well as GDP Deflator. But
both have almost similar findings. Therefore, in overall analysis the net increase in mean (median) of
real sale (Inflation) is 105220(19365) and in real sale (GDP Deflator) is 233780 (29422) but the results
is insignificant when we consider t-test and P-value.
If we analyse the full sample results these are insignificant although the mean and median has
increased in real term after privatization in full sample analysis, automobile, chemical, energy,
engineering, fertilizer and ghee sectors it results are insignificant but have increasing trend while
financial sectors performance of output decline after privatization and cement sector shows highly
significant results with improved performance.

4.5. Changes in Employment
Boycko, Shleifer & Vishny, (1996) analysis gives arguments against the previous documented
researches that state owned enterprises produce more due to political pressure but Megginson et al.
International Research Journal of Finance and Economics - Issue 87 (2012) 105

(1994) gave one argument that the increase in production in the firms after privatization is often
because of better incentives and greater financing opportunities. However, D'Souza & Megginson
(1999) documented that the decrease in employment of firms which are privatized during 1990s are
insignificant which is opposite to the La Porta and Lopez-de-Silanes (1999) who mentioned a decrease
in the employment level after privatization significantly in their sample of Mexican NPFs. Our findings
are similar to previous studies and there is a decreasing trend in employment after privatization but not
very much significant as we can observe in different tables.

4.6. Changes in Leverages
Leverage changes also appear to be persistent across my samples. We documented a significant decline
in LEV for every one of our sub samples, though in several cases-for non-competitive industry firms,
for control privatizations, and for OECD countries-the decline is relatively small.
The empirical results shows a decrease in leverage in overall results but this is insignificant
although the mean (median) has decreased in real term from 17.96(0.75) to 17.26(0.73) which give us
an idea about net change in mean (median) -0.7(-0.02) after privatization. The 0.13 T-Test value and
0.89 p-values make it insignificant. The full sample analysis make our hypothesis correct.But the in
full sample analysis, automobile, cement, chemical, sectors change in mean (median) is -0.0881 (-
0.0663), -0.035 (0.0225), -0.035 (0.0225), its results are insignificant but have an increasing trend
while the increase in leverage in financial, energy, engineering, fertilizer and ghee sectors in
mean(median) change are .00239(.01128), 0.007 (-0.0236), 0.556 (0.6092), 0.0647 (0.0694), and
0.3972 (0.3737), respectively but the results are insignificant when we consider the t-test and p-value
after privatization .

4.7. Changes in Dividend Payments
We observe whether dividend payouts, measured as total dividend payments divided by net income
(PAYOUT) and dividends divided by sales (DIVSAL), increase following privatization. This very
strong evidence of dividend increases after privatization is also found in our sub samples. Without
exception, DIVSAL increases substantially and significantly after divestiture regardless of industry
structure, privatization method, or stage of national development. Clearly, becoming a private but
publicly traded company implies a sharp increase (or initiation) in cash dividend payments.
For the hypothesis of changes in dividend payments, the overall analysis shows an
improvement DIVSAL in mean (median) from 0.669 (0.013) to 1.282 (0.006) with net change 0.613 (-
0.007) and t- value is -1.11 with p-value 0.27. This shows an increasing trend in post privatization
results but again the results are not very much significant.While considering the sectors analysis the
trend which can be observed from empirical results are in financial sector the mean (median) from
0.01458 (0) to 0.0495 (0.0495) with net change 0.613 (-0.007) shows significant increase in this
sector.Engineering, automobile and ghee sector shows significant decrease in their proxies, and rather
results of ghee sector is highly significant after privatization.
Nevertheless, cement, chemical, fertilizer and energy show increase in dividend to sale ratio but
their results are insignificant.
A large number of privatized firms which are transferred to the employees like Milliat Tractors
Ltd. and Allied Bank Limited proved good results and successful transactions. With the introduction of
improved management training, management practises, productivity and welfare of the workers, these
companies have been very successful. Similarly, some of the privatized units progressed very well
because management gave lots of benefits to the workers like increase in salary and improved working
atmosphere i.e. Kot Addu Power Company and MCB. On the other side, where the management was
unqualified, inexperienced and having no expertise to run that organization, workers have suffered a
lot.


106 International Research Journal of Finance and Economics - Issue 87 (2012)

5. Conclusion
Combined with results from previous, directly similar researches, our findings recommend that
privatization capitulate significant increase in performance and this is empirically evident through
Overall country performance, sector performance and majority of the individual firm performance.
So we can say that government should focuses on good governance, policy making, guideline,
provide supportive environment that provide incentives for the private sector to invest in providing
goods and services efficiently and effectively. The prime responsibility of the government is to work
for the welfare of the society and country not the business and privatization helps the government to
achieve its objectives and support to put business into the right hands while releasing the government
to focus on such matters as ensuring law and order and assuring that facilitating the framework which
is favourable to investment while being fair to consumers and the taxpayers.
Simultaneously, in order to improve the political condition of the country and create the
positive environment which will be ultimately fruitful for privatization, the government needs more
new investment injections, introduction of better management, introduction of new and improving the
technology, increase in competitiveness, and thus leaving more funds with the company. All these
measures automatically enhance the employment opportunity in the country. Simultaneously
government should take some important steps and develop dynamic policies to increase the confidence
of the foreign as well as local investors in Pakistan. And all this is possible only and only if the
government proves itself consistent and committed in following its policies and ensuring reforms and
continuing in development positive environment for the investors in Pakistan.
The very fundamental and foremost thing for the successful privatization is that the country
should be deregulated and the government should eliminate unnecessary restrictions and lengthy
documentation procedures form the industrial enterprises. In this way privatization should
consequently be part of a process to strengthen private sector through handing over it assets as well as
improving and establishing regulatory arrangement and better infrastructure for their operation.
Because if the government transfers the ownership to the private sector but to keep it throttled by
massive regulations then privatization would not improve the operational efficiency and effectiveness
of the organizations.
Consequently, the transfer of SoEs should be spread over a period of time. There should be a
particular pre-defined order for privatization. To privatize the SoEs, normally the government should
offered for sale the loss making units first and then the less profitable and finally the more profitable
but it is also possible that a combination of loss making and profitable units is offered for sale
collectively as a bunch. In conclusion, it must be ensured by the government that the company which is
buying the industrial as well as consumer unit must be serious to run that organization instead of
selling its assets and using the factory for some other businesses as this has happened in majority
closed units in Pakistan and this, therefore cause a severe loss of production, employment and taxes to
the national economy.
At the end, a new room for future researchers is to go for a detail analysis of privatized firms
more than seven years is available because only three years may not show the reliable trend of the
data.Privatization cannot be fruitful until and unless the support of all the stakeholders is not achieved.
These include different government agencies, government and other departments and organizations and
for the most part and very important the people of Pakistan, without whose constant support and
understanding this process cannot be undertaken successfully.


References
[1] Arbomeit, H. (1986). Privatization in Great Britain. Annals of Public and Cooperative
[2] Bhaskar, V., & Khan, M. (1995). Privatization and Employment: A Study of the J ute Industry
in Bangladesh, American Economic Review, 85(1), 267-273.
International Research Journal of Finance and Economics - Issue 87 (2012) 107

[3] Bortolotti, B., Fantini, M., & Scarpa, C. (2000). Why Do Governments Privatize Abroad?
International Review of Finance, 3, 131-161.
[4] Boubakri, N., & Cosset J .C. (1998). The financial and operating performance of newly
privatised firms: evidence from developing countries. Journal of Finance, 53(3), 1081-1110.
[5] Boycko, M., Shleifer, A., & Vishny, R.W. (1994). Voucher Privatization. Journal of Financial
Economics, 35, 249-66.
[6] Boycko, M., Shleifer, A., & Vishny, R.W. (1996). A theory of privatization. Economic Journal,
106, 309-319.
[7] Burton, J . (1987). Privatization: The Thatcher Case. Managerial and Decision Economics, 1,
21-29.
[8] Cao, Y., Qian, Y. & Weingast, B. (1999). From federalism, Chinese style to privatization,
Chinese style. Economics of Transition, 7, 103-31.
[9] Christopher, A. Cavendish, W., & Mistry, P. S. (1992). Adjusting Privatization: Case Studies
from Developing Countries. London: J ames Currey Ltd.
[10] DSouza, J ., & Megginson, W.L. (1999) The financial and operating performance of newly
privatized firms during the 1990s. Journal of Finance, 54(4), 1397-1438.
[11] DSouza, J ., Megginson, W.L., & Nash R.C. (2001). Determinants of Performance
Improvements in Privatized Firms: The Role of Restructuring and Corporate Governance
(Working paper). University of Oklahoma.
[12] Easterly, W. (2001). The Elusive Quest for Growth. Cambridge, Massachusetts: The MIT Press.
[13] Garnaut, R., Song, L. Tenev, S. & Yao, Y. (2003). A Study of Firm Restructuring in China,
manuscript. Washington, DC: The World Bank.
[14] Gibbon, H. (1997). A Seller's Manual: Guidelines for Selling State-Owned Enterprises.
Privatisation Yearbook, Privatization Int. (pp. 1626).
[15] Gul, F.A. (1999). Government Share Ownership, Investment Opportunity Set and Corporate
Policy Choices in China. Pacific-Basin Finance Journal, 7, 157-172.
[16] Kikeri, S, Nellis, J ., & Shirley, M., (1994). Privatization: lessons from market economies.
World Bank Research Observer, 9, 241-272.
[17] La Porta, Rafael, & Florencio Lopez-de-Silanes, (1999). Benefits of privatization: Evidence
from Mexico. Quarterly Journal of Economics, 114, 1193-1242.
[18] Lin, Y. & Zhu, T. (2001). Ownership restructuring in Chinese state industry: An analysis of
evidence on initial organizational changes. China Quarterly, 0 (166), 305-41.
[19] Megginson, W.L., Nash, R.C. & Randenborgh, M.V. (1994). The financial and operating
performance of newly privatized firms: An international empirical analysis. Journal of Finance,
49(2), 403-452.
[20] Megginson, W. L. (2000). Privatization. Foreign Policy, 118, 14-27.
[21] Megginson, W.L., & Netter, J .M. (2001). From State to Market: A Survey of Empirical Studies
on Privatization. Journal of Economic Literature, 39, 321-389.
[22] Omran, M. (2004). The Performance of State-Owned Enterprises and Newly Privatized Firms:
Does Privatization Really Matter? World Development, Elsevier, 32(6), 1019-1041.
[23] Paula, N. (1994). Pakistan under Banazir Bhutto. Foreign Policy, 95, 161-174.
[24] Poole, R. W. (1996). Privatization for Economic Development. In Terry L. A., & Peter J . H.
(Eds.), The Privatization Process (pp. 1-18). United States of America: Rowman & Littlefield
Publishers.
[25] Qi, D., Wu, W., & Zhang, H. (2000). Shareholding Structure and Corporate Performance of
Partially Privatized Firms: Evidence from Listed Chinese Companies. Pacific-Basin Finance
Journal, 8, 587-610.
[26] Quiggin, J . (2002). Privatization and nationalization in the 21st century. Growth, 50, 6673.
[27] Wei, Z. & Varela, O. (2003). State Equity Ownership and Firm Market Performance: Evidence
from China's Newly Privatized Firms. Global Finance Journal, 14, 65-82.
108 International Research Journal of Finance and Economics - Issue 87 (2012)

[28] Wei, Z., Varela, O., D'Souza, J ., & Hassan, M. Kabir. (2003). The financial and operating
performance of China's newly privatized firms. Financial Management, 32(2).
[29] Yergin, D., & Stanislaw, J . (1998). The Commanding Heights: The Battle between Government
and the Marketplace That Is Remaking the Modern World. NY: Simon & Schuster.
[30] Young, P. (1987). Privatization around the world. NCPA Policy Report, 120. Dallas: National
Centre for Policy Analysis.


Annexures

Table 3: Sample Firms included in the Study

Sector Sample Sector Sample
Financial Allied Bank Chemical National Fibres Ltd
MCB Sind Alkalis Ltd
Bankers Equity Ltd Ittehad Chemicals
Bank Alflah (formerly HC&E) Quality Steel
Habib Bank Ltd Fertilizer Pak China Fertilizers Company Limited
UBL Pak Arab Fertilizers (Pvt) Ltd. (94.8%)
Automobile Al-Ghazi Tractors Ltd Associated Industries
Millat Tractors Ltd Kakakhel Industries
Baluchistan Wheels Ltd Wazir Ali Industries
Pak Suzuki Co. Ltd Punjab Veg. Ghee
Bolan Castings Mustehkam Cement Limited
Cement Maple Leaf Cement Energy Mari Gas (20%)
D.G Khan Cement SSGC LPG business
Dandot Cement Pakistan Oil Fields Limited
Garibwal Cement Attock Refinery Ltd
Zeal Pak Cement Chemical National Fibres Ltd
Kohat Cement Sind Alkalis Ltd
Thatta Cement Ittehad Chemicals
Quality Steel

Table 4: Units Closed after privatization and not included in study

Karachi Pipe Mills Peshawar roti plant Korangi, Karachi roti plant
Sheikhupura rice mill Head Office, Lahore roti plant Mughal pura, Lahore roti plant
Faizabad rice mill Hyderabad roti plant Gulshan-e-Iqbal, Karachi roti plant
Siranwali rice mill Faisalabad roti plant Quaidabad Woollen Mills
Hafizabad rice mill Bahawalpur roti plant Cotton Ginning Factory
Eminabad rice mill Multan roti plant ICP lot A
Dhaunkel rice mill Quetta roti plant ICP lot B
Mabarikpur rice mill Islamabad roti plant roti plant ICP SEMP
Shikarpur rice mill Taimuria, Karachi roti plant N.P.T Building
Gulberg, Lahore roti plant SITE, Karachi roti plant Mashriq Peshawar
Pakistan Switchgear Multan Road, Lahore roti plant Mashriq Quetta
Textile Machinery Co Nowshera Chemicals Progressive Papers Ltd
NayaDaur Motors Ltd. Nowshera PVC Co. Ltd Mashriq Karachi
Federal Lodges (1-4) United Industries Limited Al Haroon Building Karachi
Dean's Hotel National Tubewell Const. Corp. International Advertising (Pvt) Ltd
Falleti's Hotel Lahore Duty Free Shops General Refractories Ltd
Kohinoor Oil Mills Dandot Works - National Cement Antibiotics (Pvt) Ltd

Table 5: Information about other firms not Included in Analysis

Data is not available Post-privatization not available
Republic Motors (Plot) Kurram Chemicals
Pak Saudi Fertilizers Ltd Swat Elutriation
International Research Journal of Finance and Economics - Issue 87 (2012) 109

Table 5: Information about other firms not Included in Analysis - continued

ShFazalRehman Swat Ceramics (Pvt) Limited
Haripur Vegetable Oil Pak Hye Oils
Bara Ghee Mills Ravi Engineering Limited
Hydari Industries National Petrocarbon
Chiltan Ghee Mills Pioneer Steel
Asaf Industries (Pvt) Ltd Indus Steel Pipe
Khyber Vegetable United Industries
Suraj Vegetable Ghee Industries Dargai Vegetable Ghee Industries
Crescent Factories Vegetable Ghee Mills 26% ownership is not transferred
Bengal Vegetable OGDCL 5%
A & B Oil Industries Ltd PTCL (10%)
Burma Oil PIA 5.8% shares SPO
E&M Oil Mills PPL 15% IPO
Maqbool Oil Company Ltd (102,875,000 shares)
Cecil's Hotel NBP 10% shares
Makerwal Collieries Merged
Bolan Textile Mills Pak Cement
Carrier Telephone Industries White Cement
Deleted due to heavy losses Habib Credit and Exchange (HC&E)
Fazal Vegetable Ghee Pre-privatization data is not available
Wah Cement KotAddu Power Company (26%)
Metropolitan Steel Mills Ltd KESC (73% GOP shares)
Pak PVC Ltd
National Motors Ltd

Table 6: Summary of Results from Tests of Predictions for the Full Sample of All Sectors all Privatized
Firms

Variables N
Mean
Before
(Median)
Mean
After
(Median)
Mean
Change
(Median)
T-test P-Value
Profitability
Return on Sales BT 99
0.0733 0.1509 0.0776
-3.23 a 0.0015
(0.0522) (0.0791) (0.0269)
Return on Sales AT 99
0.484 4.046 3.562
-2.91 0.0041
(0.036) (0.077) (0.041)
Return on Asset BT 99
0.2113 0.3263 0.115
-1.23 0.22
(0.0948) (0.0938) (-0.001)
Return on Asset AT 99
0.0631 0.2227 0.1596
-2.24 0.026
(0.0445) (0.0586) (0.0141)
Return on Equity BT 99
-2.52 8.66 11.18
-1.46 0.15
(0.29) (0.29) (0)
Return on Equity AT 99
-6.49 5.15 11.64
-1.31 0.19
(0.18) (0.19) (0.01)
Efficiency
Sales Efficiency 99
2954 7500 4546
-2.57 0.011
(1017) (1983) (750)
Net income Efficiency 99
-1415 404 1891
-1.99 0.049
(36) (123) (87)
Investment
capital expenditure to
sales
99
3.07 10.32 7.25
-1.28 0.2
(0.03) (0.05) (0.02)
capital expenditure to
asset
99
0.256 0.814 0.558
-1.29 0.2
(0.029) (0.036) (0.007)
Output
Real sales (sale/GDP
deflator)
99
698302 803522 105220
-0.38 0.7
(91520) (110885) (19365)
110 International Research Journal of Finance and Economics - Issue 87 (2012)

Table 6: Summary of Results from Tests of Predictions for the Full Sample of All Sectors all Privatized
Firms - continued

Real sales (sale/CPI) 99
664331 898111 233780
-0.87 0.38
(86023) (115445) (29422)
Employment
Total employment 99
2404 2162 -242
0.39 0.7
(807) (665) (-142)
Leverage
Debt to asset 99
17.96 17.26 -0.7
0.13 0.89
(0.75) (0.73) (-0.02)
Dividend
Dividend to sales 99
0.669 1.282 0.613
-1.11 0.27
(0.013) (0.006) (-0.007)
a. Level of significance at 5%
This table presents empirical results for our full sample of privatized firms. The table presents, for each empirical proxy, the
number of useable observations, the mean and median values of the proxy for the three-year periods prior and following to
privatization, the mean and median change in the proxys value after versus before privatization, and a test of significance
for the change in mean values. The final two columns detail the t-test from mean, whether the results are as which we have
predicated, as well as a test of significance. In all cases with two or more proxies listed, we consider the one listed first to be
our preferred and most reliable empirical variable because it uses a current measure in either the numerator or the
denominator, or both. Finally, sales efficiency uses inflation-adjusted sales and GDP deflator adjusted sales figures divided
by the number of employees each year. Net income efficiency and real sales are computed similarly.

Table 7: Summary of Results from Tests of Predictions for the all Firms in Financial Sector

Variables N
Mean
Before
(Median)
Mean
After
(Median)
Mean
Change
(Median)
T-test P-Value
Profitability
Return on Sales BT 18
0.0851 0.2741 0.189
-2.98 0.005
(0.0879) (0.1807) (0.0928)
Return on Sales AT 18
0.0117 0.1833 0.1716
-3.29 0.0024
(0.0507) (0.2359) (0.1852)
Return on Asset BT 18
0.00776 0.01443 0.00667
-1.66 0.11
(0.00649) (0.01486) (0.00837)
Return on Asset AT 18
0.00149 0.00973 0.00824
-2.41 0.023
(0.00341) (0.01015) (0.00674)
Return on Equity BT 18
-0.17 0.493 0.663
-1.58 0.13
(0.15) (0.261) (0.111)
Return on Equity AT 18
-0.388 0.296 0.684
-1.39 0.18
(0.087) (0.169) (0.082)
Efficiency
Sales Efficiency 18
1719 1755 36
-0.06 0.95
(1197) (1015) (-182)
Net income Efficiency 18
55.9 342.8 286.9
-2.88 0.0074
(38.4) (299) (260.6)
Investment
capital expenditure to sales 18
0.1664 0.585 0.4186
-1.4 0.18
(0.022) (0.068) (0.046)
capital expenditure to asset 18
0.01216 0.0438 0.03164
-1.36 0.19
(0.0016) (0.0031) (0.0015)
Output
Real sales (sale/GDP deflator) 18
1759188 1309253 -449935
0.56 0.58
(291857) (560995) (269138)
Real sales (sale/CPI) 18
1667821 1432965 -234856
0.33 0.74
(306970) (534533) (227563)
Employment
Total employment 18
8835 8467 -368
0.16 0.87
(8274) (8815) (541)

International Research Journal of Finance and Economics - Issue 87 (2012) 111

Table 7: Summary of Results from Tests of Predictions for the all Firms in Financial Sector - continued

Leverage
Debt to asset 18
0.95521 0.95282 -0.00239
0.26 0.8
(0.95857) (0.94729) (-0.01128)
Dividend
Dividend to sales 18
0.01458 0.0495 0.03492
-1.75 0.094
(0) (0.0495) (0.0495)
This table presents empirical results for sample of financial sector of privatized firms. The table presents, for each empirical
proxy, the number of useable observations, the mean and median values of the proxy for the three-year periods prior and
following to privatization, the mean and median change in the proxys value after versus before privatization, and a test of
significance for the change in mean values.

Table 8: Summary of Results from Tests of Predictions for the all Privatized Firms in Automobile Sector

Variables N
Mean
Before
(Median)
Mean
After
(Median)
Mean
Change
(Median)
T-test P-Value
Profitability
Return on Sales BT 15
0.061 0.062 0.001
0.03 0.98
(0.0367) (0.0425) (0.0058)
Return on Sales AT 15
0.0218 0.0426 0.0208
-0.63 0.53
(0.0234) (0.0273) (0.0039)
Return on Asset BT 15
0.0492 0.067 0.0178
-0.55 0.59
(0.0388) (0.0815) (0.0427)
Return on Asset AT 15
0.0218 0.0422 0.0204
-0.77 0.45
(0.0212) (0.046) (0.0248)
Return on Equity BT 15
0.137 -0.64 -0.777
0.58 0.57
(0.228) (0.26) (0.032)
Return on Equity AT 15
-0.076 -0.82 -0.744
0.53 0.61
(0.17) (0.15) (-0.02)
Efficiency
Sales efficiency 15
1630 3737 2107
-1.88 0.078
(1616) (2999) (1383)
Net income Efficiency 15
8.6 109.2 100.6
-1.17 0.26
(29.2) (85.6) (56.4)
Investment
Capital expenditure to sales 15
0.0427 0.02463 -0.01807
1.09 0.29
(0.0281) (0.01139) (-0.01671)
Capital expenditure to asset 15
0.0454 0.0189 -0.0265
1.69 0.11
(0.0292) (0.01754) (-0.01166)
Output
Real sales (sale/GDP deflator) 15
197764 181688 -16076
0.21 0.83
(115251) (140277) (25026)
Real sales (sale/CPI) 15
197851 182488 -15363
0.2 0.84
(136452) (154801) (18349)
Employment
Total employment 15
767 468.2 -298.8
2.28 0.035
(691) (540) (-151)
Leverage
Debt to asset 15
0.8248 0.7367 -0.0881
1.72 0.1
(0.8293) (0.763) (-0.0663)
Dividend
Dividend to sales 15
2.52 2.49 -0.03
0.01 0.99
(0.81) (0) (-0.81)
This table presents empirical results for sample of Automobile sector of privatized firms. The table presents, for each
empirical proxy, the number of useable observations, the mean and median values of the proxy for the three-year periods
prior and following to privatization, the mean and median change in the proxys value after versus before privatization, and
a test of significance for the change in mean values.
112 International Research Journal of Finance and Economics - Issue 87 (2012)

Table 9: Summary of Results from Tests of Predictions for the all Privatized Firms in Cement Sector

Variables N
Mean
Before
(Median)
Mean
After
(Median)
Mean
Change
(Median)
T-test P-Value
Profitability
Return on Sales BT 24
0.0476 0.1847 0.1371
-2.95 0.0051
(0.0481) (0.2116) (0.1635)
Return on Sales AT 24
0.0259 0.1498 0.1239
-3.13 0.003
(0.0294) (0.1614) (0.132)
Return on Asset BT 24
0.0484 0.139 0.0906
-2.23 0.031
(0.0453) (0.135) (0.0897)
Return on Asset AT 24
0.026 0.1047 0.0787
-2.2 0.034
(0.0293) (0.0667) (0.0374)
Return on Equity BT 24
0.2221 0.29 0.0679
-0.72 0.48
(0.1642) (0.229) (0.0648)
Return on Equity AT 24
0.1491 0.2326 0.0835
-1 0.32
(0.1285) (0.1804) (0.0519)
Efficiency
Sales Efficiency 24
626.7 9323 8696.3
-2.04 0.053
(538) (1428) (890)
Net income Efficiency 24
-6302 403 6705
-1.83 0.078
(17) (233) (216)
Investment
capital expenditure to sales 24
0.02708 0.1392 0.11212
-3.36 0.0026
(0.01929) (0.0762) (0.05691)
capital expenditure to asset 24
0.03055 0.0889 0.05835
-2.67 0.012
(0.01536) (0.0593) (0.04394)
Output
Real sales (sale/GDP deflator) 24
65347 94508 29161
-2.42 0.02
(58422) (95977) (37555)
Real sales (sale/CPI) 24
64790 96491 31701
-2.8 0.0075
(63301) (99035) (35734)
Employment
Total employment 24
782.3 673 -109.3
0.9 0.37
(825.5) (753) (-72.5)
Leverage
Debt to asset 24
0.921 0.5649 -0.3561
2.8 0.0093
(0.69) (0.5562) (-0.1338)
Dividend
Dividend to sales 24
0.02921 0.0606 0.03139
-1.52 0.14
(0.02222) (0.0191) (-0.00312)
This table presents empirical results for sample of Cement sector of privatized firms. The table presents, for each empirical
proxy, the number of useable observations, the mean and median values of the proxy for the three-year periods prior and
following to privatization, the mean and median change in the proxys value after versus before privatization, and a test of
significance for the change in mean values.

Table 10: Summary of Results from Tests of Predictions for the all Privatized Firms in Chemical Sector

Variables N
Mean
Before
(Median)
Mean
After
(Median)
Mean
Change
(Median)
T-test P-Value
Profitability
Return on Sales BT 9
0.1149 0.0575 -0.0574
1.88 0.08
(0.1142) (0.0685) (-0.0457)
Return on Sales AT 9
0.0639 0.0332 -0.0307
1.2 0.25
(0.0668) (0.0477) (-0.0191)
Return on Asset BT 9
0.1239 0.0737 -0.0502
1.7 0.11
(0.1296) (0.0802) (-0.0494)
International Research Journal of Finance and Economics - Issue 87 (2012) 113

Table 10: Summary of Results from Tests of Predictions for the all Privatized Firms in Chemical Sector -
continued

Return on Asset AT 9
0.0693 0.0484 -0.0209
0.69 0.5
(0.077) (0.0572) (-0.0198)
Return on Equity BT 9
0.3023 0.1766 -0.1257
1.8 0.093
(0.3066) (0.1527) (-0.1539)
Return on Equity AT 9
0.1583 0.1176 -0.0407
0.66 0.52
(0.1886) (0.1243) (-0.0643)
Efficiency
Sales Efficiency 9
642.7 1044 401.3
-2.89 0.011
(620) (981) (361)
Net income Efficiency 9
49.5 35.1 -14.4
0.6 0.56
(37.6) (52.4) (14.8)
Investment
capital expenditure to
sales
9
0.0677 0.1842 0.1165
-1.19 0.27
(0.032) (0.0582) (0.0262)
capital expenditure to
asset
9
0.0862 0.1119 0.0257
-0.48 0.64
(0.0364) (0.096) (0.0596)
Output
Real sales (sale/GDP
deflator)
9
69963 74704 4741
-0.26 0.8
(67788) (66796) (-992)
Real sales (sale/CPI) 9
68224 70912 2688
-0.16 0.87
(69923) (74199) (4276)
Employment
Total employment 9
988 713.8 -274.2
2.71 0.019
(892) (665) (-227)
Leverage
Debt to asset 9
0.5583 0.5233 -0.035
0.54 0.6
(0.5025) (0.525) (0.0225)
Dividend
Dividend to sales 9
0.00944 0.02141 0.01197
-1.19 0.25
(0) (0) (0)
Proxy, the number of useable observations, the mean and median values of the proxy for the three-year periods prior and
following to privatization, the mean and median change in the proxys value after versus before privatization, and a test of
significance for the change in mean values.

Table 11: Summary of Results from Tests of Predictions for the all Privatized Firms in Energy Sector

Variables N
Mean
Before
(Median)
Mean
After
(Median)
Mean
Change
(Median)
T-test P-Value
Profitability
Return on Sales BT 12
0.1873 0.2146 0.0273
-0.34 0.74
(0.0843) (0.1336) (0.0493)
Return on Sales AT 12
0.1272 0.1638 0.0366
-0.63 0.54
(0.0734) (0.1077) (0.0343)
Return on Asset BT 12
0.1039 0.1248 0.363
-0.44 0.66
(0.0473) (0.069) (0.084)
Return on Asset AT 12
0.071 0.0885 0.0175
-0.51 0.62
(0.0389) (0.0532) (0.0143)
Return on Equity BT 12
0.3213 0.3667 0.0454
-0.48 0.64
(0.2383) (0.2924) (0.0541)
Return on Equity AT 12
0.2002 0.2434 0.0432
-0.68 0.51
(0.1345) (0.2562) (0.1217)
Efficiency
Sales Efficiency 12
9438 20348 10910
-1.32 0.21
(2937) (7905) (4968)
Net income Efficiency 12
578 1448 870
-1.79 0.092
(271) (755) (484)
114 International Research Journal of Finance and Economics - Issue 87 (2012)

Table 11: Summary of Results from Tests of Predictions for the all Privatized Firms in Energy Sector -
continued

Investment
Capital expenditure to sales 12
0.231 0.1089 -0.1221
0.98 0.35
(0.109) (0.0572) (-0.0518)
Capital expenditure to asset 12
0.0797 0.0486 -0.0311
1.22 0.24
(0.0566) (0.0418) (-0.0148)
Output
Real sales (sale/GDP deflator) 12
2214026 3874768 1660742
-1.08 0.29
(1256500) (2372760) (1116260)
Real sales (sale/CPI) 12
2120315 4383321 2263006
-1.59 0.13
(1239903) (3284134) (2044231)
Employment
Total employment 12
1815 1820 5
-0.01 1
(812) (737) (-75)
Leverage
Debt to asset 12
0.6729 0.6799 0.007
-0.08 0.93
(0.7514) (0.7278) (-0.0236)
Dividend
Dividend to sales 12
0.0822 0.0869 0.0047
-0.14 0.89
(0.0436) (0.0634) (0)
This table presents empirical results for sample of energy sector of privatized firms. The table presents, for each empirical
proxy, the number of useable observations, the mean and median values of the proxy for the three-year periods prior and
following to privatization, the mean and median change in the proxys value after versus before privatization, and a test of
significance for the change in mean values.

Table 12: Summary of Results from Tests of Predictions for the all Privatized Firms in Engineering Sector

Variables N
Mean
Before
(Median)
Mean
After
(Median)
Mean
Change
(Median)
T-test P-Value
Profitability
Return on Sales BT 3
-0.108 0.239 0.347
-1.3 0.28
(-0.01) (0.069) (0.079)
Return on Sales AT 3
-0.116 0.247 0.363
-1.33 0.28
(-0.016) (0.068) (0.084)
Return on Asset BT 3
-0.0564 0.0601 0.1165
-1.04 0.37
(-0.0081) (0.0167) (0.0248)
Return on Asset AT 3
-0.0664 0.0619 0.1283
-1.19 0.32
(-0.0137) (0.0164) (0.0301)
Return on Equity BT 3
1.45 -0.137 -1.587
1.18 0.36
(0.27) (-0.039) (-0.309)
Return on Equity AT 3
1.39 -0.142 -1.532
1.13 0.38
(0.17) (-0.038) (-0.208)
Efficiency
Sales Efficiency 3
342.2 613 270.8
1.15 0.37
(358.4) (389) (30.6)
Net income Efficiency 3
-34.9 78.4 113.3 -1.09 0.39
(-5.9) (26.3) (32.2)
Investment
Capital expenditure to sales 3
0.0239 0.01087 -0.01303
0.9 0.44
(0.03) (0.00207) (-0.02793)
Capital expenditure to asset 3
0.0255 0.00291 -0.02259
1.62 0.25
(0.0252) (0.0005) (-0.0247)
Output
Real sales (sale/GDP deflator) 3
25590 14006 -11584
1.18 0.32
(18047) (8797) (-9250)
Real sales (sale/CPI) 3
26420 12412 -14008
1.47 0.28
(18272) (9708) (-8564)
International Research Journal of Finance and Economics - Issue 87 (2012) 115

Table 12: Summary of Results from Tests of Predictions for the all Privatized Firms in Engineering Sector -
continued

Employment
Total employment 3
658.3 250 -408.3
8.11 0.0039
(637) (250) (-387)
Leverage
Debt to asset 3
0.8702 1.4262 0.556
-5.78 0.029
(0.8177) (1.4269) (0.6092)
Dividend
Dividend to sales 3
0.00558 0 -0.00558
0 0
(0) (0) (0)
This table presents empirical results for sample of engineering sector of privatized firms. The table presents, for each
empirical proxy, the number of useable observations, the mean and median values of the proxy for the three-year periods
prior and following to privatization, the mean and median change in the proxys value after versus before privatization, and
a test of significance for the change in mean values.

Table 13: Summary of Results from Tests of Predictions for the all Privatized Firms in Fertilizer Sector

Variables N
Mean
Before
(Median)
Mean
After
(Median)
Mean
Change
(Median)
T-test P-Value
Profitability
Return on Sales BT 6
0.0704 0.1543 0.0839
-0.83 0.43
(0.0856) (0.1343) (0.0487)
Return on Sales AT 6
3.99 14.73 10.74
-1.75 0.12
(4.92) (14.93) (10.01)
Return on Asset BT
6 0.181 0.0538 -0.1272
0.98 0.37
(0.123) (0.0451) (-0.0779)
Return on Asset AT
6 0.0722 0.0507 -0.0215
0.26 0.8
(0.0405) (0.054) (0.0135)
Return on Equity BT
6 0.496 0.1749 -0.3211
0.99 0.37
(0.541) (0.1626) (-0.3784)
Return on Equity AT 6
0.196 0.1668 -0.0292
0.15 0.89
(0.231) (0.1923) (-0.0387)
Efficiency
Sales Efficiency
6 1842 4297 2455
-1.46 0.2
(1697) (6363) (4666)
Net income Efficiency
6 211 846 635
-1.67 0.17
(150) (1026) (876)
Investment
Capital expenditure to sales 6
0.00584 0.0252 0.01936
-1.14 0.32
(0.00367) (0.0152) (0.01153)
Capital expenditure to asset 6
0.01056 0.00881 -0.00175
0.2 0.85
(0.00482) (0.00511) (0.00029)
Output
Real sales (sale/GDP deflator) 6
633283 512933 -120350
0.32 0.76
(395337) (637198) (241861)
Real sales (sale/CPI) 6
699146 600888 -98258
0.26 0.8
(655127) (860748) (205621)
Employment
Total employment 6
1177 1121 -56
0.3 0.78
(1175) (1231) (56)
Leverage
Debt to asset 6
0.3262 0.3909 0.0647
-0.65 0.54
(0.3186) (0.388) (0.0694)


116 International Research Journal of Finance and Economics - Issue 87 (2012)

Table 13: Summary of Results from Tests of Predictions for the all Privatized Firms in Fertilizer Sector -
continued

Dividend
Dividend to sales 6
0.0488 0.0464 0.3972
0.05 0.96
(0.0468) (0) (0.3737)
This table presents empirical results for sample of Fertilizer sector of privatized firms. The table presents, for each
empirical proxy, the number of useable observations, the mean and median values of the proxy for the three-year periods
prior and following to privatization, the mean and median change in the proxys value after versus before privatization, and
a test of significance for the change in mean values.

Table 14: Summary of Results from Tests of Predictions for the all Privatized Firms in Ghee Sector

Variables N
Mean
Before
(Median)
Mean
After
(Median)
Mean
Change
(Median)
T-test P-Value
Profitability
Return on Sales BT 12
0.024 0.00239 -0.02161
1.62 0.12
(0.0354) (0.00915) (-0.02625)
Return on Sales AT 12
0.0095 -0.00123 -0.01073
0.89 0.39
(0.02137) (-0.00258) (-0.02395)
Return on Asset BT 12
0.1485 0.0138 -0.1347
2.59 0.02
(0.2147) (0.0333) (-0.1814)
Return on Asset AT 12
0.0754 -0.0022 -0.0776
1.94 0.066
(0.1187) (0.0064) (-0.1123)
Return on Equity BT 12
3.01 -0.16 -3.17
1.16 0.27
(0.36) (0.086) (-0.274)
Return on Equity AT 12
3.73 -0.114 -3.844
1.08 0.3
(0.21) (0.031) (-0.179)
Efficiency
Sales Efficiency 12
7570 11747 4177
1.29 0.22
(7299) (8594) (1295)
Net income Efficiency 12
124.4 -8.7 -133.1
1.28 0.21
(104.6) (9.3) (-95.3)
Investment
Capital expenditure to sales 12
0.00233 0.01272 0.01039
-1.42 0.18
(0.00121) (0.00426) (0.00305)
Capital expenditure to asset 12
0.0139 0.0336 0.0197
-1.15 0.27
(0.00387) (0.0161) (0.01223)
Output
Real sales (sale/GDP deflator) 12
77957 126331 48374
-1.41 0.18
(77385) (95617) (18232)
Real sales (sale/CPI) 12
75448 118518 43070
-1.66 0.12
(71890) (97949) (26059)
Employment
Total employment 12
193.1 167 -26.1
0.34 0.74
(82) (105) (23)
Leverage
Debt to asset 12
0.521 0.9182 0.3972
-3.35 0.0044
(0.55) (0.9237) (0.3737)
Dividend
Dividend to sales 12
0.00852 0.00104 -0.00748
3.95 0.0017
(0.01041) (0) (-0.01041)
This table presents empirical results for sample of Ghee sector of privatized firms. The table presents, for each empirical
proxy, the number of useable observations, the mean and median values of the proxy for the three-year periods prior and
following to privatization, the mean and median change in the proxys value after versus before privatization, and a test of
significance for the change in mean values.