Long-run performance of an industry after broader reforms including privatization

Research on the impacts of broader reforms, including privatization on firms’ long-run financial and operational performance, is extremely important but only occasionally performed. This study evaluates the long-run financial performance, total factor productivity, efficiency and technology of Pakistani cement manufacturing firms. We conclude that privatized firms have in fact achieved significant productivity growth in the long run due to technological progress compared to no growth in the pre-reform period. Interestingly, however, better productive performance has not contributed to long-run profitability and income efficiency gains, thereby casting serious doubt on the long-run financial benefits of reforms, including privatization.     

Growth and Renewal in the United States: Retooling America's Economic Engine*

New research by the McKinsey Global Institute (MGI) examines the growth challenge facing the United States and explores how U.S. business and government can contribute to the economy's renewal by reinvigorating their drive toward higher productivity. As baby boomers retire and the female participation rate plateaus, the U.S. economy will receive significantly less lift from increases in the labor force and will have to rely increasingly on productivity gains to fuel growth. The report finds that the United States needs a 34% acceleration in productivity growth if it is to match the GDP growth rates of the past 20 years—and that this is possible. Three‐quarters of the necessary productivity growth acceleration can come from the efforts of private‐sector companies operating within the current regulatory and business environment. Even the best‐performing companies and sectors still have headroom to boost productivity by emulating the best practice of others and tapping into new innovations, and coming up with new innovations of their own. The remaining one‐quarter—and more—can come from government and business working together to address barriers that now limit growth. MGI lays out a seven‐point agenda for action to spur productivity.     

The productivity effects of privatization: The case of Polish cooperatives

This paper evaluates the productivity effects associated with privatization of producer cooperatives. The results, based on a sample of 2164 Polish cooperatives, indicate that privatized cooperatives have: (1) 1% lower total factor productivity (TFP) the year prior to privatization and 3-20% higher TFP in the year of privatization and three years post-privatization, (2) 9-36% higher labor productivity, (3) capital productivity effects of − 16-6%. The evidence is consistent with governance and incentive mechanisms of cooperatives being more effective outside of state interference, and with competition and hard budget constraints leading to pressure to restructure and adopt practices that improve productivity.     

秘密握手协议、生产率传递与工资的规模溢价

头部企业为什么能打破市场均衡而将生产率优势转化为工资租？理论分析表明,市场份额越大,雇主与雇员之间越易达成“秘密握手协议”,即通过联合来操纵劳动供给,以抬高人均生产率并进行分割。在这一过程中,员工分割比例虽有所下降,但不足以抵消人均生产率上升的影响,进而产生工资租。以上市公司为例,市场份额位于前10%的头部企业,人均生产率对工资的传递力度仅比市场份额位于中位值附近的企业低4%,但人均生产率却高出40%以上,直接导致了较高的工资优势。进一步借鉴Blanchard and Summers(1986)的方法进行检验,发现头部企业确实存在更明显的“合谋”迹象,程度比中位值附近的企业高出近一倍。“秘密握手协议”的本质是通过限制劳动力流动阻碍工资均等化,在扎实推进共同富裕的道路上,不仅要反产品市场垄断,也要防范不合理攫取生产率红利的行为。     

The reversal of privatization in China: A political economy perspective

We document reversals of privatization in China—local governments re-possessing ownership stakes in a quarter of previously privatized firms during 1998–2007, a period when the privatization process was still ongoing. This type of ownership restructuring helped ease the unemployment burden in the local labor markets, and was more likely to occur in firms located in provinces led by an official without strong political status in the Chinese Communist Party. A reversal in privatization led to higher leverage, lower profitability and lower labor productivity. Our paper sheds light on how frictions in the political structure affect the implementation of economic policies in a top-down system.     

Financial sector liberalization,bank privatization,and efficiency: Evidence from Pakistan

The Pakistani banking system has been transformed over the past 15 years through liberalization, the entry of private banks, the privatization of public-sector banks, and the tightening of prudential regulations. The effects of these changes on bank productivity and relative efficiency are investigated using various techniques. Bank productivity in terms of profits has increased, and new entrants have been efficient, but the dispersion of efficiency remains wide. The privatized banks improved their profit efficiency in the period immediately following their privatization, but in the subsequent years only one significantly improved its efficiency, whereas the other did not differentiate itself in terms of efficiency from the remaining state-owned banks. The new private domestic banks generally proved to be among the most efficient, and sometimes out-performed the foreign banks.     

Determinants of corporate hedging decision: Evidence from Croatian and Slovenian companies

This paper presents the research results on determinants of corporate risk management decisions in large Croatian and Slovenian non-financial companies. Research has revealed that the explored hedging rationales have little predictive power in explaining corporate risk management decisions both in Croatian and Slovenian companies. The evidence based on both univariate and multivariate empirical relations between the decision to hedge in Croatian non-financial companies and financial distress costs, agency costs, costly external financing, taxes, managerial utility and hedge substitutes, fails to provide any support for any of the tested hypotheses but one - costly external financing measured by investment expenditures-to-assets ratio. The same analysis conducted for the Slovenian companies has shown that there is no statistically significant explanatory variable for the decision to hedge; therefore it is not dependent on any of the predicted theories of hedging.     

University of Texas Roundtable on The Role of Private Equity in the Financing and Restructuring of Oil and Gas Companies

In this second of two University of Texas roundtables, four highly successful veterans of the U.S. energy industry, with considerable experience running both public and private companies, discuss recent developments in this rapidly evolving industry. Among the most remarkable—and a major focus of this discussion—is the dramatic expansion of the output and productivity of the Permian Basin of West Texas, and the role of private equity in accomplishing it. Although the Permian has been a major source of oil and gas since 1920, the combination of massive horizontal drilling and hydraulic fracturing has contributed to a tripling of production volumes from about 800,000 barrels per day to 2.5 million during the past ten years. In fact, the productivity gains are said to be so great that, even with the huge run‐up in the cost of acquiring acreage (to as high as $40,000 per acre), today's producers are projecting annual operating returns of 20% even if oil prices fail to rise above their current level of about $50 a barrel. What's more, there appears to have been a fairly clear division of labor between private and public companies in this recent development of the Permian. With most of the high‐priced acreage now being acquired by larger public companies, the primary role of private equity has been to identify and make good on opportunities to increase the productivity and value of smaller operations that can then be sold to public companies—companies that have the size and access to capital to benefit from the economies of scale produced by combining them with their other operations. Thanks to their earlier position in the value chain, investments by private equity groups have generally not only produced higher payoffs, on average, but involved larger operating and financial risks. And this difference in risk profile is reflected in a notable difference in hedging practices between public and private equity‐controlled companies. This difference was summed up as follows by a private equity partner who has also run several public oil and gas companies: To a much greater extent in private equity than in public companies, we think of our projects and companies as delivering value that is largely independent of changes in oil prices. Hedging is our way of saying we don't want to take oil price risk if we don't have to. We do not count on price increases to make our required returns. The returns come from operating the company successfully without the help of commodity prices.     

Private equity in the global economy: Evidence on industry spillovers

Using a novel dataset on global private equity investments in 19 industries across 52 countries, we find that labor productivity, employment, profitability, and capital expenditures increase for publicly-listed companies in the same country and industry as private equity investments. Our results show that positive externalities created by private equity firms are absorbed by other companies within the same industry. Consistent with prior literature on competitive spillovers, these effects are more pronounced in country-industries with higher levels of competition, stronger institutions, and moderate levels of technological development suggesting that the competitive pressures from private equity-backed firms cause industry peers to react.     

The Modern Industrial Revolution,Exit, and the Failure of Internal Control Systems

Since 1973 technological, political, regulatory, and economic forces have been changing the worldwide economy in a fashion comparable to the changes experienced during the nineteenth century Industrial Revolution. As in the nineteenth century, we are experiencing declining costs, increasing average (but decreasing marginal) productivity of labor, reduced growth rates of labor income, excess capacity, and the requirement for downsizing and exit. The last two decades indicate corporate internal control systems have failed to deal effectively with these changes, especially slow growth and the requirement for exit. The next several decades pose a major challenge for Western firms and political systems as these forces continue to work their way through the worldwide economy.     

Privatization,financial development,property rights and growth

This study analyzes how prevailing institutional arrangements i.e., property rights, contracting rights, political institutions, and corporate governance practices affect privatized firms’ performance, capital markets development, and economic growth. Most of the studies surveyed show that privatization enhances privatized firms performance, efficiency, and profitability, which percolates to economic growth. Privatized firms performed better in countries with better regulatory and legal frameworks. Partial privatization may be beneficial in countries with weak institutions, namely, the French civil law countries. The stronger the economic and the governing institutions, the easier it is for privatized firms to thrive and contribute to economic growth. Overall, privatization allows firms to achieve improved efficiency while driving the development of the financial sector.     

The Financial and Operating Performance of Privatized Firms during the 1990s

This study compares the pre- and postprivatization financial and operating performance of 85 companies from 28 industrialized countries that were privatized through public share offerings for the period from 1990 through 1996. We document significant increases in profitability, output, operating efficiency, and dividend payments—and significant decreases in leverage ratios—for our full sample of firms after privatization, and for most subsamples examined. Capital expenditures increase significantly in absolute terms, but not relative to sales. Employment declines, but insignificantly. Combined with results from two previous, directly comparable studies, these findings strongly suggest that privatization yields significant performance improvements.     

Does the response of competitors to privatization announcements reflect competitive or industry-wide information effects? International evidence

We examine the stock price reaction of rival firms to the announcement of the privatization of their industry counterparts to infer information about the intra-industry effects of privatization. We find that the rival firms reacted negatively to the privatization announcements, suggesting that the announcement effects reflect competitive rather than positive industry effects. The reaction is stronger for industry counterparts in low economic freedom countries than those in high economic freedom countries. Interestingly, we also find that full privatization announcements generate larger negative abnormal returns for rival firms than partial privatization announcements where the privatized firm gains only partial autonomy from the government. In this regard, we find that, as the proportion of government ownership reduces, subsequent partial privatization announcement elicits stronger market reaction from rival firms. The negative abnormal returns earned by shareholders of rival firms are not due to price pressure and portfolio rebalancing effects resulting from index composition changes. We conclude that the negative effects documented for the rival firms reflect investors' concern about the potential competitive effects resulting from privatization of the state enterprise.     

民营化、融资约束与企业创新——来自中国工业企业的证据

本文研究国有企业民营化对企业创新的影响及其影响机制。利用中国工业企业数据库,以民营化企业为实验组、以国有企业为对照组进行双重差分检验,结果发现,国有企业民营化显著抑制了企业创新,而融资约束是抑制民营化企业创新的重要因素。进一步检验发现,融资约束对民营化企业创新的抑制作用主要存在于金融发展水平较低的地区,而在金融发展水平较高的地区,这种抑制作用并不明显。本文的研究结果从融资约束的角度拓展了民营化影响企业创新的相关研究,且从民营化的角度为金融市场如何影响企业创新提供了新的视角。此外,本文有助于澄清有关民营化的争议,为进一步深化混合所有制改革、加强金融对民营企业的支持以促进民营企业的创新和发展提供理论依据和政策参考。     

雇佣保护影响企业并购决策吗？

以2004-2017年中国A股上市公司为样本,采用Fraser Institute发布的经济自由度指数,研究雇佣保护对企业并购决策和并购绩效的影响。研究发现,雇佣保护程度越高,企业并购可能性和并购规模越小,且这一关系在劳动密集度较高、受融资约束较大的企业中更强,表明雇佣保护通过降低并购整合收益和限制并购融资能力两种机制对企业并购决策产生影响。通过考察并购经济后果,发现严格的雇佣保护会阻碍全要素生产率的提高和并购利得的实现,进一步佐证了主要研究发现。     

Private Equity: Accomplishments and Challenges

The authors provide an overview of the main accomplishments of private equity since the emergence of leveraged buyouts in the 1980s, and of the challenges now facing the industry—challenges that have been encountered before during three major growth waves and two full boom‐and‐bust cycles. In so doing, the authors review a large and growing body of academic studies responding to questions like these:

• (1) How have PE buyout companies performed relative to their public counterparts? And to the extent there have been improvements in operating performance and productivity gains, how have such gains been achieved? What role have PE firms played in this process?
• (2) Especially in light of the large fees and profit shares paid to the PE firms, or GPs, and the significant “control” premiums over market paid to the selling companies, how have the returns to the LPs that provide the bulk of the funding for PE funds compared to the returns earned by the shareholders of comparable public companies?
• (3) Apart from the high fees earned by its GPs, why is PE so controversial? Beyond their effects on productivity and benefits for investors, what are the employment and other social effects of buyouts and PE?
• (4) What are the prospects for future PE returns to their LPs, especially in light of the volume of capital commitments and high purchase multiples that were being paid, at least until the onset of the COVID pandemic? And what role, if any, should PE activity be expected to play in the recovery from the pandemic?

     

An analysis of changes to a team-based incentive plan and its effects on productivity,product quality,and absenteeism

Using data from three production units of a large manufacturing plant that employs production teams in its assembly operations, this paper examines how changes made to an existing team-based incentive plan affects labor productivity, product quality, and worker absenteeism. The firm switched from a piece-rates contract and an attendance bonus and instituted a two tier incentive plan comprising two different but complementary performance-based bonus schemes: one tier based on individual team performance and the other tier on plant-wide performance. The incentives were introduced concurrently with management control initiatives intended to facilitate cooperation and monitoring among the teams. I find significant productivity gains and improvements in quality and absenteeism associated with the new incentive plan. These findings underscore two important points that have not been emphasized in existing empirical studies of incentive pay: incentive contracts for teams generate superior performance using combination of incentives, and the need to introduce organizational changes to facilitate cooperation and peer monitoring in tandem with incentive pay to capture greater incentive effects in team production.     

Social Capital,Trust, and Corporate Performance: How CSR Helped Companies During the Financial Crisis (and Why It Can Keep Helping Them)

The authors summarize the findings of their study, published recently in the Journal of Finance, that shows that CSR investments can help companies when they perhaps need it most—that is, during sharp downturns when overall trust in companies and markets declines. Companies with high‐CSR rankings experienced stock returns that were five to seven percentage points higher than their low‐CSR counterparts during the 2008–2009 financial crisis, and even larger excess returns during the Enron crisis of 2001–2003. High‐CSR companies during the crisis also reported better operating performance, higher growth, higher employee productivity, and greater access to debt markets—while continuing to generate higher shareholder returns as late as the end of 2013. Many of these operating improvements continued well into the post‐crisis period, though at more modest levels. As the authors view their findings, the ‘social capital’ built up by corporate CSR programs complements effective financial capital management in increasing shareholder wealth mainly by limiting companies' downside risk. CSR is seen as not only reducing systematic as well as firm‐specific risk, but as also providing protection against overall ‘loss of trust.’ The social capital created by CSR programs is said to provide a kind of insurance policy that pays off when investors and the overall economy face a severe crisis of confidence.     

Nonrecurring Accounting Transactions and Stock Option Grants

Abstract:  We examine the effect of nonrecurring accounting transactions on stock option grants for a sample of US companies. After controlling for both the economic and corporate governance-related determinants of option grants, we find that the aggregate value of stock option grants is more positively related to nonrecurring gains than to nonrecurring losses. We also examine whether the asymmetric treatment of nonrecurring gains and losses arises because (1) information contained in the nonrecurring transactions is related to firms' long-term prospects, (2) weak corporate governance fails to curb more favorable executive pay arrangements, (3) executives possess superior bargaining power in the labor marketplace, and (4) firms have significant growth opportunities. While we find no support for the first explanation and some support for the third, we find more consistent support for the growth explanation and two factors related to the corporate governance explanation: director-executive duality and the frequency of board meetings.     

Labor cost voluntary disclosures and firm equity values: Is human capital information value-relevant?

This study examines the market value relevance of labor cost voluntary disclosures using a valuation model relating firm market values to book values of equity and to disclosed human capital information, such as labor costs, net pension liabilities (NPLs), and estimated average and marginal labor productivity and efficiency indicators. Results indicate that labor cost disclosing companies command higher equity market values in general, and that labor productivity and efficiency measures appear to be undervalued. Both findings suggest that there might be market opportunities for firms with valuable human capital to differentiate themselves from their industry peers, which might encourage further human capital disclosure in the future. More refined measures of human capital assets and investments are needed to assess firms’ human resource management decisions and performance impacts in the capital markets more adequately.