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PRIVATISING NATIONAL OIL COMPANIES: ASSESSING THE IMPACT ON FIRM PERFORMANCE - page 19 / 30

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The analysis of the SIP sub-sample in Table 4 shows that firm-specific effects

account for the large majority of performance improvements. The control group

coefficients are not statistically significant, and point estimates and significance levels

change little after inclusion of the control group. The annual growth rates indicate that

part of the observed reduction in employment intensity is due to industry trends, but

that the majority of the overall changes are firm-specific. Total output growth and

output growth per employee are even greater when the control group is included in the

specification – the privatised companies improve in spite of a negative industry trend.

Share returns analysis

Because many of the performance improvements that we find are based on

accounting data, the possibility of “window dressing” (or earnings management) has

to be considered, most likely in the form of managed positive accruals prior to the

offering, in order to maximise privatisation revenues. Under the ‘disappointment

hypothesis’, managed accruals before the offering should result in both subsequent

underperformance on accounting measures and downward revisions in share price

(Soffer 2001). DuCharme et al. (2001) find that pre-IPO abnormal accruals are

positively related to initial firm value and are significantly negatively related to

subsequent firm stock returns. Calculating abnormal share returns for our sample of

oil and gas privatisations is therefore a suitable check whether pre-privatisation

performance improvements are temporary accounting constructs only. In contrast to

studies on IPOs of private companies, previous studies on the share performance of

privatised companies suggest that these stocks outperform in the long-run (Choi et al.

2006).19

19 At their offering price, the 28 privatised oil and gas companies within our sample had an aggregate market capitalisation (in 2006 money) of US$253 billion. Excluding Britoil and Enterprise Oil, both of

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