Does Privatization Increase Firm Performance in Nigeria?: An Empirical Investigation

Abutu, Usman Ojonugwa (2015): Does Privatization Increase Firm Performance in Nigeria?: An Empirical Investigation.

Abstract

The public enterprises have generally failed to provide the social and economic development sought by the post-independence era in African countries, hence privatization has been central to policy making in the recent times. This paper offers insight into the validity of the efficacy of privatization by investigating not only whether privatization has improved financial (profitability) performance of firms but also whether such improvement has impact on the operational efficiency of privatized firms for the period 1990-2001 in Nigeria. Using a panel data for a sample of 20 privatized firms obtained from the Nigerian Stock Exchange and Securities and Exchange Commission, the result shows an increase in all the profitability ratios after privatization. However, only the return on assets and return on sales are significant in explaining the difference between pre- and post-privatization performance of firms in Nigeria. The result of the operational efficiency shows a significant increase in the mean (median) values of sale efficiency and income efficiency. Interestingly, while output (real sales) and employee income of firm significantly increase after privatization, the number of employees insignificantly decreases after privatization. The paper concludes that privatization in Nigeria has worked in the sense that it improves the financial and operational efficiency performance of firms.

• Item Type: MPRA Paper
• Language: English
• Keywords: Privatization, Firm Performance, Operational Efficiency, Profitability, Nigerian Stock Exchange
• Subjects: L - Industrial Organization > L3 - Nonprofit Organizations and Public Enterprise > L33 - Comparison of Public and Private Enterprises and Nonprofit Institutions ; Privatization ; Contracting Out

References

Berenson, M.L., David, M.L., and David, R. (1998). Applied Statistics: A First course, Prentice-Hall, Inc.

Bhaskar, V. and Khan, M. (1995). “Privatization and Employment: A Study of the Jute Industry in Bangladesh”, American Economic Review 85(1): 267-273.

Boubakri N., Cosset, J. and Gudhami, O. (2001). “Liberalization, Corporate Governance and Performance of Newly Privatized Firms”, William Davidson Working Paper Number 419, December.

CBN (2003). Contemporary Economic Policy Issues in Nigeria. In Nnanna O.J.; Alade, S.O. and O.F. Odoko (Eds), CBN Publication, Abuja.

Craig, J. (2002). “Privatization in Sub-saharan Africa: Some Lessons from Experiences to Date”. International Finance Corporation, Draft Paper, pp. 20.

Domberge, S. and Pigott (1986). “Privatization policies and public enterprises: A Survey”. Economic Record, 62: 145-162.

Elias, A. (2001). “The Performance of Privatized Firms in Nigeria”, Unpublished PhD Thesis, University of Ibadan-Nigeria.

Galal, A., Jones, P.T., and Vogelsang I. (1994). “The Welfare Consequences of Selling Public Sector Enterprises”, London: Oxford University Press.

Hachette, D. and Luders, R. (1993). “Privatization in Chile: An economic appraisal, International Centre for Economic Growth.

Jerome, A. (2008). “Privatization and Enterprise Performance in Nigeria: Case Study of Some Privatized Enterprises”. African Economic Research Consortium, AERC, Research Paper, 175.

Jerome, A. (2002). “Public Enterprises Reform in Nigeria: Evidence from the Telecommunications Industry”. African Economic Research Consortium, AERC, Research Paper, 129.

Loc, T.D., Ger, T. and Lensink R. (2005). “The Impact of Privatization on Firm Performance in a Transition Economy: A Case of Vietnam. SOM theme C: Coordination and growth in economies, Department of Economics, University of Groningen, http://som.rug.nl/.

Megginson, W. L., Nash, R. C. and van Randenborgh, M. (1994). “The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis”. Journal of Finance, 49(2) pp. 403 – 452.

Nellis, J. (2005). “Privatization in Africa: what has happened? What is to be done?”. Working paper No. 127.2005, Centre for Global Development

Sanda, A.U and Dantama, Y.U (2008). “Foreign Ownership and State Ownership as Determinants of Post-Privatization Firm Performance: Lessons for Economic Policy in Nigeria”. A paper presented at the 50th Annual Conference of NES held at University Abuja from 20-30 September,

The Nigerian Stock Exchange (2006). Fact Book. A publication of NSE, Lagos. Udeaja, E. (2006). ‘Privatization and Production Efficiency of Firms in Nigeria. African Journal of Economic Policy, 13(10) pp. 51 – 73, June.

Udeaja, E. (2000). Privatization and Firm Performance: A Case Study of Selected fully Privatized Firms in Nigeria. African Journal of Economic Policy, 7(1) pp. 87- 118, June.

Usman, O. and Musa, M.S. (2013). “An Empirical study of the main Determinants of Post-Privatization in Nigeria”. African Journal of Management and Administration, 6(4), Pp.33-39.