The effect of ownership and regulation on the post-privatisation performance of SOEs operating in non-competitive markets

Abstract

This thesis is an empirical investigation of the impact of ownership and regulation on the performance of privatised state-owned enterprises (SOEs) operating in noncompetitive markets. Previous research highlighted that ownership, market structure, regulation and post-privatisation performance were interrelated, but emphasised the difficulty in disaggregating individual effects. To that end, this thesis utilised three distinct studies. The first study investigated the impact of ownership structure, public, mixed (with both majority and minority government ownership) and private. It further disaggregated ownership by whether foreign direct investment (FDI) was or was not permitted, as well as controlling for industry-specific regulation. The study found significant performance differences not revealed by examining ownership, FDI, and privatisation in aggregate, providing strong evidence that a more nuanced view of ownership is essential. The second study further examined the role of ownership and FDI in relation to performance. Ownership was defined as either direct sales to foreign anchor investors or domestic share issue privatisations (SIPs), reflecting both concentrated versus dispersed and foreign versus domestic ownership structures. There were no significant differences in performance between the two firms preprivatisation. However, post-privatisation, the direct sale to foreign investors involving concentrated ownership did not outperform the partially privatised, domestic SIP involving dispersed ownership, contrary to previous research. The third study explored the relationship between regulation and market power. The results show that, where competition is absent, profitability, unconstrained by regulation, was due to market power while, in regulated markets, profitability was determined by the regulatory environment. All three studies find that privatisation is associated with changes in performance. Importantly, however, the studies show that the relationship between privatisation and performance requires a more nuanced understanding of types of ownership structure and the regulatory environment. Overall, this thesis concludes that ownership matters, but industry-specific regulation is equally important. A degree of private ownership has the potential to improve organisational performance, as does the participation of foreign investors in the privatisation process. This potential is not guaranteed; it is only realised if, in non-competitive markets, a change of ownership is associated with industry-specific regulation. Thus, the regulatory environment becomes the critical variable in determining post-privatisation performance in non-competitive markets.