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PRIVATISING NATIONAL OIL COMPANIES: ASSESSING THE IMPACT ON FIRM PERFORMANCE - page 5 / 30

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regulatory and organisational changes. Focusing on the longitudinal privatisation

studies, two methodologies have proven to be particularly influential. The first

methodology, as set out in Megginson et al. (1994) and also employed in this paper,

compares the pre- and post privatisation performance of companies privatised through

public share offerings. The second methodology is the social cost-benefit analysis

introduced by Jones et al. (1990).

The basic Megginson methodology has been used for a wide range of privatisation

samples. D'Souza and Megginson (1999) combine their own results with those of

Megginson et al. (1994) and Boubakri and Cosset (1998) to yield a dataset of 211

companies from 42 countries. The three studies yield consistent findings in that

privatisation significantly improves firm profitability, efficiency and output, decreases

financial leverage and leads to higher dividend payments, but the effect on

employment levels is inconclusive.6 Their basic univariate methodology has intuitive

appeal, but its technical limitations have in recent years led many authors to apply

more sophisticated econometric tools. Dewenter and Malatesta (2001), Boubakri et al.

(2005) and Gupta (2005) are examples of privatisation studies that use univariate tests

as a first approximation within a more detailed framework of analysis.

Evidence of lower profitability does not convincingly prove that public ownership

is undesirable, since public firms may be pursuing worthy purposes other than profit

maximization. Galal et al.(1994) study the total welfare consequences of privatisation

in 12 case studies and find that divestiture substantially improved economic welfare in

11 of the 12 cases. Using the same methodological approach, Newbery and Pollitt

(1997) find that the overall welfare effect of the privatisation of the UK’s Central

6 Other studies explore specific industries such as banking (Verbrugge et al. 2000) and telecoms (D'Souza and Megginson 2000), or specific counties, e.g. Canada (Boardman et al. 2000) and China (Wei et al. 2003; Jia et al. 2005).

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