THE EFFECTS OF CHANGES IN CORPORATE GOVERNANCE AND RESTRUCTURINGS ON OPERATING PERFORMANCE: EVIDENCE FROM PRIVATIZATIONS

Juliet DSouza Clayton State University William Megginson University of Oklahoma Robert Nash Wake Forest University Revised draft May 24, 2006 Abstract Using a sample of 161 firms (privatized from 1961-1999), our study offers evidence regarding how restructurings and corporate governance changes affect the firms post-privatization performance. Prior to privatization, governments may choose to restructure firms through governance changes (i.e., establish relation with strategic foreign investors, implement employee share ownership plans) and/or restructurings (i.e., acquisitions, divestitures, re-capitalizations). We first extend the existing privatization research by documenting and describing these restructurings. We then conduct preliminary tests to examine whether such restructurings/governance changes have contributed to improvements in postprivatization operating performance. Our results suggest that both restructuring and changes in corporate governance are important determinants of post-privatization performance. We feel that our multinational, multi-industry sample provides a broad perspective of share-issue privatizations and offers opportunities to identify potential sources of efficiency improvements in newly privatized firms. JEL Classification: G15, G28, G38, L33 Keywords: International financial markets, performance, privatization Please address correspondence to: William L. Megginson Price College of Business 307 West Brooks, 205A Adams Hall The University of Oklahoma Noman, OK 73019-4005 Tel: (405) 325-2058; Fax: (405) 325-7688 e-mail: wmegginson@ou.edu

THE EFFECTS OF CHANGES IN CORPORATE GOVERNANCE AND RESTRUCTURINGS ON OPERATING PERFORMANCE: EVIDENCE FROM PRIVATIZATIONS I. Introduction Over the last few decades, privatization defined as the sale of previously state-owned enterprises to private owners--has transformed the global economic landscape. The extant literature clearly shows that privatization does work to improve the financial and operating efficiency of divested firms. Megginson and Netter (2001), Djankov and Murrell (2002), Lpez-de-Silanes (2005), Nellis (2005), and Megginson (2005) all provide summaries of this research. In this paper, we empirically analyze reasons why privatization may work. Specifically, we examine how restructurings and changes in corporate governance impact the performance of newly-privatized firms. Our methods and results are similar to those of Boubakri, Cosset, and Guidhame (2005), though our focus is more on developed countries. Prior to privatization, governments may choose to restructure firms through governance changes, such as establishing relationships with strategic foreign investors or implementing employee share ownership plans, and/or through restructurings such as acquisitions, divestitures, or re-capitalizations. We extend the existing privatization research by examining whether such restructurings/governance changes contribute to increased improvements in post-privatization operating performance. This question is important since some governments subject firms to significant restructurings and organizational changes before privatization while others typically do not. Accordingly, this study will further the search for potential sources of post-privatization performance improvements. Using a sample of 161 firms privatized between 1961 and 1999, our study offers evidence regarding how restructurings and governance changes affect the firms post-privatization performance. Our results confirm that both restructuring and changes in corporate governance are important determinants of post-privatization performance. First, we find that pre-privatization restructuring leads to stronger efficiency gains. We also find evidence of stronger profitability gains for firms with lower postprivatization employee ownership and higher state ownership. We also find stronger output gains for firms in competitive (unregulated) industries and for firms in developing nations. This paper is organized as follows. Section II surveys the theoretical and empirical literature to identify potential sources of post-privatization performance improvements. Section III describes our data and defines our testable predictions. Section IV outlines our empirical methodology and Section V presents our findings. Section VI provides a summary and conclusion.

II.

Potential Sources of Post-Privatization Performance Improvements The finance and economics literatures suggest reasons why privatization might cause firms to

operate more productively. We focus on the impact of changes in corporate governance and restructuring. Specifically, privatization involves changes in corporate governance due to changes in ownership. The act of privatization reduces state ownership. Some privatizations further re-shuffle governance structures by providing ownership to employees and foreigners. As stressed by Boycko, Shleifer and Vishny (1996), Nellis (1999, 2005), Shirley and Walsh (2000), and Chong and Lpez-deSilanes (2005), state-owned enterprises suffer from having multiple objectives, many of which are imposed on them by politicians who reap most of the benefits of politicized decision-making, yet bear few of the costs. The ownership changes from privatization should help to redefine the firms objectives and the managers incentives. This should impact post-privatization performance. Second, releasing the firm from government control provides greater entrepreneurial opportunities. One response to this freedom is the restructuring of the newly-privatized firms. Such restructurings include divestitures, acquisitions, and re-capitalizations. In the following paragraphs, we examine each of these broad changes brought on by privatization and identify specific, testable sources of potential performance improvements. We also control for other factors that the literature identifies as potential influences on post-privatization performance. A.. Corporate Governance: Changes in Ownership Privatization redefines the firms objective function. When the state is the owner, firms typically pursue multiple and often conflicting objectives. Conversely, privatized firms are more focused on profit maximization. The degree to which the privatized firms can pursue profit maximization differs considerably across our sample companies because of differences in corporate governance. Specifically, the ownership structure of our sample exhibits wide variation. Some of our sample firms retain significant amounts of state ownership while others become owned by employees or by foreign investors. We examine how differences in state ownership, foreign ownership, and employee ownership affect the performance of newly-privatized firms. Since SOEs pursue objectives that frequently conflict with profit-maximization, the level of postprivatization ownership retained by the state should affect the newly privatized firms efficiency improvements. Boycko, Shleifer, and Vishny (1996) predict efficiency gains from privatization only if control rights pass from the government to private investors. Similarly, Claessens (1997) contends that, if the state maintains majority ownership, the firm is more likely to delay restructuring and maintain excessive employment. Additionally, Paudyal, Saadouni, and Briston (1998) argue that selling only a small stake increases the likelihood of continuing government interference and possible renationalization. In empirical studies of the effects of privatization, DSouza and Megginson (1998), Boubakri and Cosset

(1998), Eckel, Eckel, and Singal (1997), and Megginson, Nash, and Van Randenborgh (1994) report larger efficiency improvements following sales in which the government relinquished majority control. Accordingly, we expect that the greatest performance improvements will result from privatizations in which private owners gain control of the firm. On the other hand, Gupta (2005) shows that even partial privatization yields significant performance improvements in India. The presence of foreign investors may also affect the degree of post-privatization performance improvement, especially since foreign investment has accounted for an increasing share of privatization revenues in developing countries. Furthermore, Shafik (1996) notes that foreign direct investment (FDI) has been the most common means of foreign participation in privatization transactions in developing countries. Additionally, Smith et al. (1997) and Anderson, Makhija, and Spiro (1997) find that profitability as measured either by return on equity or revenue per employee is significantly higher for the firms with foreign investors. This effect is especially pronounced in transition economies, as shown by Djankov and Murrell (2002) and Brown, Earle, and Telegdy (2006). The amount of employee share ownership may also contribute to changes in post-privatization performance. Boycko, Shleifer and Vishny (1996) predict that employees are unlikely to support valuemaximizing restructuring efforts, and Barberis, Boycko, Shleifer, and Tsukanova (1996) conclude that equity ownership by employees does not spur performance improvements after privatization. Accordingly, we test for a relation between employee ownership and firm performance following privatization. We expect employee ownership to negatively affect post-privatization performance. B. Corporate Governance: Changes in Upper Management Privatization also affects corporate governance by introducing changes in the privatized firms upper management. Replacing the often politically appointed manager of the SOE with a professional businessperson should lead to performance improvements. For example, Lopez-de-Silanes (1997) recognizes that the existing SOE management may lack the appropriate human capital to effectively guide the newly-privatized firm. He finds a positive relation between a change in the CEO and the market value of the privatized firm. Barberis, Boycko, Shleifer, and Vishny (1996) cite new human capital as an important factor in increasing the probability of value-maximizing restructuring. Megginson, Nash, and Van Randenborgh (1994) also report stronger efficiency gains for firms with larger changes in top management. Based on these findings, we expect that corporate governance changes (brought on by different upper management) will positively impact the degree of post-privatization performance improvement. C. Restructuring When fully state-owned, firms typically take on financial and organizational structures designed to meet multiple, often politically-motivated objectives. Following privatization, firms become more

focused on profitability and wealth maximization. Indeed, privatization is often an initial step in a transformation process whereby the state-owned firm becomes reconfigured to compete as a private enterprise. As we will document in the following empirical analysis, restructuring is frequently an important part of this transformation. We first summarize the reasons commonly associated with restructuring. More importantly, we identify how these factors directly affect firms undergoing the privatization process. We then define the different forms of restructurings from which newly-privatized firms may choose. C.1. Reasons for Restructuring The corporate finance literature identifies multiple factors which may trigger restructurings. Most of these restructuring catalysts are especially relevant in the context of privatization. Chong and Lpez-de-Silanes (2002) document that restructurings occur frequently around privatizations, but also find these are often unsuccessful.

C.1.A. Response to External Shocks Jensen (1993), Mitchell and Mulherin (1996), and Mulherin and Boone (2000) argue that restructurings are primarily responses to significant shocks (e.g., substantial changes in legal, political, or regulatory systems). The ownership and institutional transformation brought about by privatization should represent such a shock in most countries. Djankov and Murrell (2002) note that the radical changes caused by privatization have compelled newly-privatized firms to restructure, while Birdsall and Nellis (2003) and McKenzie and Mookherjee (2003) examine the distributional impact of privatization in developing countries. Restructurings may also be triggered by economic conditions (e.g., recession) or by product market pressures (e.g., competition). As identified in Megginson et al. (1994), the newly-privatized firm faces larger threats from these forces since privatization frequently involves the weakening of regulatory protection and the reduction of state subsidies. Therefore, this heightened sensitivity to external shocks should contribute to greater restructuring activity by newly-privatized firms.

C.1.B. Desire for Efficiency Improvements The corporate control literature cites efficiency improvement as a common reason for restructuring. Studies such as Jensen and Ruback (1983), Hite, Owers, and Rogers (1987), John, Lang, and Netter (1992), John and Ofek (1995), and Maksimovic and Phillips (2000) conclude that restructuring generally increases efficiency by transferring assets to firms that can put the resources to a better use. Furthermore, Gaughan (2002) and Kaplan and Weisbach (1992) note that restructuring frequently involves the elimination of negative synergies (by removing assets that are performing poorly or are no

longer a strategic fit). Based on the empirical work summarized by Megginson and Netter (2001), stateowned firms targeted for privatization may represent prime candidates for such restructuring since these firms are frequently bloated and inefficient.

C.1.C. Pursuit of New Opportunities New growth opportunities may also motivate firms to restructure. Weston (1989), Lang et al. (1995), and Mulherin and Boone (2000) contend that restructurings directly result from a firms desire to pursue new strategies and prospects. These growth opportunities are frequently created by evolving economic conditions (such as the changes brought about by privatization). Therefore, it is again more likely that newly-privatized firms should engage in some form of restructuring.

C.1.D. Change in Corporate Strategy Restructuring may result from changes in the firms strategy. Kaplan and Weisbach (1992) find that strategic change is the most common reason for many restructurings. These strategic shifts could involve either expansion or contraction. As noted above, privatization creates growth opportunities. Accordingly, the newly-privatized firm may engage in an expansion strategy to pursue this potential. Alternatively, a firm may restructure in order to contract. This form of strategic adjustment typically involves a streamlining or re-focusing on a core business. Lang et al. (1995), Slovin et al. (1995), and John, Lang, and Netter (1992) determine that many value-enhancing restructurings result from divestments that enhance the firms focus.

C.2. Forms of Restructuring Since the extant corporate finance literature suggests that restructuring may frequently accompany privatization, we next examine the different forms of restructuring activities that may be undertaken by newly-privatized firms. We identify three primary methods of restructuring. In Appendix 3, we provide firm-specific details of each restructuring that we identify in our sample. In our empirical analysis, we examine how these restructurings affect post-privatization performance.

C.2.A. Organizational/Operational Restructuring(Org/Op) The first form of restructuring is the reorganization of the firms production methods and/or management structure. Examples include the closing, consolidating, or overall reorganizing of production facilities. This form of restructuring may also involve modernization of operations and changes in management structure. As shown in Appendix 3 (and described in our later analysis), the

organizational and operational restructurings are the most frequent means of reorganization for our sample firms.

C.2.B. Acquisitions and Divestments(A&D) A second type of restructuring occurs when the newly-privatized firm engages in an acquisition or a divestiture. Mulherin et al. (2001) document extensive acquisition and divestment activity by newlyprivatized firms. The authors determine that restructurings facilitated by the market for corporate control have contributed to enhanced productivity. Acquisitions cause expansion and may represent efforts by newly-privatized firms to take advantage of opportunities created by the transfer from state control. Alternatively, divestments cause contraction and may represent efforts to shed unprofitable units and downsize to a more efficient functional form. All divestments by our sample firms were asset sell-offs.1 In an asset sell-off, the firm typically sells a division or major facility to an outside party. Appendix 3 identifies the newly-privatized firms that engaged in acquisitions and divestments.

C.2.C. Financial Restructuring The final method of restructuring entails financial reorganization. Financial restructurings typically involve a reduction in the leverage of the newly-privatized firm.2 Our sample firms implemented financial restructurings through debt payoffs, debt write-offs, and leverage-reducing recapitalization (e.g., debt-equity swaps). Financial reorganizations may also include a major refinancing or restructuring of a loan. Examples of financial restructuring are presented in Appendix 3.

D.

Other Factors: Macroeconomic and Institutional Environment In addition to changes in corporate governance and restructurings, many other factors may impact

post-privatization performance. We control for these influences (which primarily relate to the firms macroeconomic and institutional environment). For example, the literature suggests that we must consider the level of capital market development. Dewenter and Malatesta (1997), Anderson, de Palma, and Thisse (1997) and Estrin and Perotin (1991) argue that state-owned firms are less efficient because they are immune from capital market scrutiny. As a result, managerial performance is inadequately monitored. Upon privatization, the public trading of shares introduces the discipline of the capital. However, recent academic research has clearly documented that the intensity of the capital market
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Gaughan (2002) provides an extensive description of other forms of divestment (such as spin-offs, split-offs, splitups and equity carve-outs). We observe none of these alternative forms of divestment by our sample firms. 2 Megginson et al (1994) , Dewenter and Malatesta (2001), and Megginson and Netter (2001) note an overall decrease in leverage following privatization. Faccio (2006) shows that politically connected firms (including state-

pressure depends upon the size and sophistication of the nations financial system (LaPorta, Lopez-deSilanes, Shleifer, and Vishny (1998), Levine (1997), Demirguc-Kunt and Maksimovic (1998), Levine and Zervos (1998), Rajan and Zingales (1998), Subrahmanyam and Titman (1999)). While many of the firms in our sample are from countries with highly developed equity markets, many others operate in lessdeveloped financial markets.3 As a result, some privatized firms face greater market monitoring than others do. We expect that the firms whose shares trade in more sophisticated and active equity markets should display the strongest performance improvements. For managers to feel the full disciplining pressure of the capital market, the rights of the individual shareholder (particularly the voting rights) must be enforced by the countrys legal system. LaPorta, Lopez-de-Silanes, Shleifer, and Vishny (1998) note that the amount of protection of shareholders legal rights varies significantly across countries. Specifically, shareholders in countries with an English common law tradition benefit from much stronger legal protection than those living in nations with French civil law systems. The authors find that markets affording greater shareholder protection are consistently larger and more efficient. Therefore, we predict that the degree of shareholder rights protection within a country should be positively related to performance improvements following privatization. A nations political and economic environment may also affect the magnitude of the change in the firms performance following privatization. To borrow terms used in a slightly different context by Biais and Perotti (2001), whether a divesting government is committed (to privatization and economic reform) or populist (selling SOEs just to raise money) should significantly influence the performance of privatized firms. Several empirical studies support this prediction. Also, Kikeri, Nellis, and Shirley (1992) suggest that a country with a fairly sophisticated economy and higher income is more likely to have a market-friendly policy framework. Such factors should increase the chances of successful privatization. However, Boubakri and Cosset (1998) find that firms in developing nations exhibit very strong performance improvements following privatization. Therefore, to potentially resolve this ambiguity, we test whether the level of development of a nations economy is a significant determinant of postprivatization efficiency improvements. Privatization may also expose the firm to the discipline of the product market. Having to compete with other firms for customers and market share may provide the pressure required to stimulate greater efficiency and profitability. Ramamurti (1997), Newbery and Pollitt (1997), and Vickers and
owned enterprises) use more financial leverage because they can be assured of government financial support if they encounter distress. 3 In fact, Megginson, Nash, Netter, and Poulsen (2004) show that governments of countries with under-developed capital markets launch share issue privatization programs specifically as a way to develop these markets. Jones,

Yarrow (1991) identify competition as a major determinant of post-privatization performance improvements. Vickers and Yarrow (1991) suggest that while privatization should stimulate efficiency gains in competitive environments, there is no advantage to private ownership when market power exists. Several empirical studies--including Megginson, Nash, and Van Randenborgh (1994), and LaPorta and Lopez-de-Silanes (1999)--report significant differences when comparing the post-privatization performance of competitive and non-competitive firms. These studies find that both types of firms (competitive and regulated) experience efficiency improvements. However, the efficiency gains are significantly greater for firms in competitive markets.4 We extend this analysis by testing for postprivatization performance differences between competitive firms and regulated utilities. III. Data and Methodology Our sample consists of 161 companies from 39 countries. We draw our sample from the appendix of Megginson and Netter (2001). Through mail requests, we directly solicit annual reports and prospectuses from the privatized firms. We also access data from the websites of newly-privatized firms. Our data are collected by hand from these sources. Furthermore, we limit our analysis to share-issue privatizations. While governments may use other methods of privatization (e.g., direct sale to another company), share-issue privatizations (SIPs) represent the largest and most economically and politically important privatizations. We compute proxies using local currency data in our performance measurements. Whenever possible, the ratios include nominal data in both the numerator and denominator. We also emphasize ratios computed using current-year, flow measures, which are less sensitive to inflation and to accounting conventions. We follow the techniques of Megginson, Nash, and Van Randenborgh (1994) to identify the prevalence of post-privatization performance improvements. We then begin our search for factors that may explain why newly privatized firms experience changes in profitability and efficiency. Initially, we partition the total data into various sub-samples. We use the Kruskal-Wallis procedure to test for significant differences between the subgroups. A significant difference between subsamples would indicate that the subgroup classification factor might be an important determinant of post-privatization performance changes. We focus on the effect of changes in corporate governance and restructurings. In the latter stage of empirical testing, we perform a multivariate OLS regression to examine how various firm-level, industry, and country factors affect the post-privatization performance. In each of our

Megginson, Nash, and Netter (1999) and Biais and Perotti (2002) examine how political and economic factors influence the pricing and allocation strategies of governments launching SIP programs. 4 An extremely important counter-example is, however, provided by Galiani, Gertler, and Schargrodsky (2005), who show that Argentine water companies (regulated utilities) increased both efficiency and service levels after privatization--which led directly to a decline in infant mortality on the order of several hundred deaths per year.

models, the dependent variable is the change in the value of the performance proxy (mean value after privatization / mean value before privatization). The independent variables are factors that the theoretical and empirical literature identifies as potential determinants of post-privatization efficiency gains. Appendix 1 lists the sample firms and provides some descriptive information about each privatization. Our sample of privatizations raised $221 billion from 1961-1999. While the data range over thirty years, a majority of the privatizations occurred in the late 1980s and early 1990s. The average transaction resulted in the government selling approximately 50% of the firms equity. In 40 of the privatizations, the government reduced its equity ownership stake from 100% to 0%. We next specify empirical proxies (also summarized in Appendix 2) for each factor predicted to affect post-privatization performance. The following section defines these proxies and describes how we expect each variable to impact the newly privatized firms financial and operating performance. IV. A. Empirical Proxies and Testable Predictions Corporate Governance: Changes in Ownership Following the transfer of ownership from the state to private investors, we expect significant changes in the owners (and managers) incentives and in the firms objectives. These changes should indicate a more focused and efficient organization. Since SOEs typically pursue objectives inconsistent with profit maximization, we expect that privatizations that generate the largest amount of private ownership will experience the greatest performance improvements. In addition, we predict stronger efficiency gains for firms with more foreign ownership. We also expect a positive relation between the percentage of employee ownership and the amount of performance improvement. We use the percentage of shares retained by the government as a proxy for state ownership, and we use percentage of shares allocated to foreign investors at the time of issue to measure foreign ownership. As a proxy for employee ownership, we use the percentage of shares allocated to employees at the time of issue. We also perform the Kruskal-Wallis test to determine the effect of control on performance improvement. We divide the sample into control and no-control groups. The control group consists of firms with greater than fifty percent private ownership, and the no-control group consists of firms with less than fifty percent private ownership. We also examine this effect using regression analyses.

B.

Corporate Governance: Changes in Upper Management Megginson et al. (1994) report that changes in upper management frequently occur around the

time of privatization. We identify privatized firms that replaced the CEO. We also examine Board of Director composition (before and after privatization). We expect that the infusion of new management

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should lead to stronger post-privatization performance. The Kruskal-Wallis test assesses the impact of changes in CEO and changes in Board of Directors on post-privatization improvements.

C.

Restructuring Just prior to privatization, we find that many firms restructure. In particular, we find firms

restructure through organizational changes and/or acquisitions and divestitures and/or financial restructurings (i.e., re-capitalizations). There are 105 firms for which we can definitively determine whether or not restructuring occurred. By examining prospectuses, annual reports, and secondary news reports and company disclosures, we verify that 52 firms did some form of restructuring during the privatization process.5 If firms restructure in order to improve profitability and efficiency, we predict that restructuring should increase performance improvements. We perform the Kruskal-Wallis test to determine the effect of restructuring. For the Kruskal-Wallis test, we divide the sample into firms that restructured and firms that did not restructure. The regression analyses proxy these with dummy variables. To more thoroughly understand the impact of restructuring, we next provide descriptive statistics and observations regarding the restructuring activities of our sample firms. Our restructuring sub-sample consists of 77 transactions undertaken by 52 newly-privatized firms. Since our total sample consists of 161 firms, our data indicate that approximately 1 of 3 newly-privatized firms (32%) engages in some form of restructuring. **** Insert Table 1 about here **** Table 1 provides extensive descriptive statistics for this restructuring sub-sample. We array the transactions into three groups: 1) Acquisitions and Divestments (A&D), 2) Financial, and 3) Organizational and Operational restructurings. While acquisitions and divestments typically receive the most popular attention, the most frequent form of restructuring is organizational and operational restructurings. During 1981-1999, we document 37 of these types of re-organizations (48% of all restructuring transactions). These 37 firms represent 23% of all the firms in our total sample. Acquisitions and divestments comprise 35% of our restructuring sub-sample. Several firms conducted multiple acquisitions and divestments during the sample period. Overall, 18 firms (11% of all firms privatized) choose this method of restructuring. Finally, financial restructurings account for 17% of all transactions (and are undertaken by 13 firms). This represents only 8% of all privatized firms.

Of the 55 restructured firms, 33 of these firms had organizational changes, 17 firms conducted financial restructurings, and 22 firms engaged in acquisitions and divestitures. The numbers do not sum to 55 because some firms did more than one form of restructuring.

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Panel A documents the restructurings by year of our sample period. While restructurings took place in all but two years, a preponderance occurred in the 1990s. Of the 52 firms that engaged in restructuring, 44 (85%) did so in the 1990s. Our modal year is 1991, with 13 transactions. Panel B shows that newly-privatized firms in all industries engaged in restructurings. The largest number of restructurings is by manufacturing firms. However, as shown in Appendix 1, a majority of our sample is from the manufacturing sector. In fact, we identify restructuring in only 25% of all manufacturing firms in our sample. The telecommunications industry exhibits much greater frequency of restructuring. The 22 telecom restructurings were conducted by 15 firms, while our total sample includes 28 telecoms. Therefore, on a per-firm basis, telecoms are over twice as likely to restructure as are manufacturers. Privatized European telecoms, for example, were particularly active acquirers of stateowned telecom providers in the transition economies during the 1990s, and many of these same European operators were forced to execute large rights issues during 2002-03 in order to stave off severe financial distress. This greater propensity for telecom restructuring is consistent with evidence presented by Bortolotti, DSouza, Fantini and Megginson (2002) and Li and Xu (2004). Furthermore, we identify that transportation firms are also especially prone to restructuring. The seven transportation firms (that conducted the 12 restructurings) represent 42% of all transportation firms in our sample. This largely results from the turmoil roiling the global airline industry from the late 1990s onwards. In Panel C, we partition our restructuring sub-sample by country. Newly-privatized firms conducted some type of restructuring in 25 of our 39 sample countries.6 The modal quantity of restructurings is from the U.K. (10 transactions by 6 firms). However, we draw limited conclusions from this since British firms make up the largest proportion of our sample (i.e., total sample includes 27 British firms). A large number of restructurings also occurred in Italy. The eight restructurings were undertaken by five newly-privatized Italian firms. Since our total sample includes only 11 Italian firms, a larger relative amount of Italian firms engaged in restructuring. Examples include the repeated acquisitions and divestments of the electricity provider, ENEL, as it transitioned to a more competitive industrial environment and the restructuring of Telecom Italia after it was partially acquired by an Italian investor group. Full privatization of the Italian banking system also prompted a wave of mergers that brought much needed consolidation. The type of restructuring also varies by location. Organizational/Operational restructurings occurred in 22 countries, while financial restructurings took place in only 8 countries. LaPorta et al. (1997) present evidence that a nations legal environment affects financial decisions. Specifically, English common law provides for stronger protection of investor rights. This

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institutional infrastructure contributes to a more-developed capital market and a greater emphasis on the maximization of shareholder wealth. Accordingly, firms in nations with an English legal origin may be more likely to restructure. In Panel D, we partition our restructuring data based on legal system (English common law vs. non-common law). The data in Panel D suggest that legal origin does not appear to affect the overall frequency of restructuring.7 However, a closer examination of each of the three forms of restructuring indicates that financial restructurings are approximately evenly split between the two legal origins. This is disproportionate since only roughly one-third of our total sample is from countries with English legal systems. Therefore, the stronger financial market orientation (that LaPorta et al. (1997) attribute to an English legal origin) may contribute to a greater likelihood of financial restructuring by newly-privatized firms. In Panel E, we examine whether the countrys overall level of economic development may affect the frequency of restructuring. As in Megginson et al. (1994) and DSouza et al. (2006), we use OECD membership to distinguish developed and emerging economies. If financial market development facilitates restructuring, we should expect greater restructuring activity in OECD nations. Panel E indicates that a majority of our samples restructurings (83%) are from OECD firms. However, approximately 83% of are sample firms are from OECD nations. Accordingly, there appears to be no immediate evidence that the countrys level of economic development impacts the likelihood of restructuring.8

Acquisitions and Divestments A Closer Look Since acquisitions and divestments are typically the largest and most visible forms of restructuring, we devote Table 2 to a more detailed descriptive analysis of these two types of transactions. We first separate the acquisitions from the divestments. Table 2 identifies 13 acquisitions and 14 divestments (during our 1981-1999 sample period). An initial interesting observation is that divestments outnumber acquisitions. During the same period in the U.S. (1981-1999), acquisitions outnumber divestments by a margin of two-to-one.9 **** Insert Table 2 about here ****
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There are 14 countries in our sample in which no newly-privatized firm engaged in any identifiable form of restructuring. These are: Chile, Greece, India, Indonesia, Jamaica, Korea, Netherlands, Oman, Portugal, Qatar, Singapore, Thailand, Turkey, and Venezuela. 7 While twice as many non-English firms engaged in some form of restructuring, there are also twice as many firms from non-English countries in our sample. 8 One empirical regularity supporting the position that economic development may contribute to greater restructuring can be drawn from our discussion of Panel C (restructuring activity by country). As described in an earlier note, no restructurings occurred in 14 of our sample nations. Nine of these 14 countries (64%) were nonOECD. Overall, non-OECD countries comprised only 17% of our total sample.

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As with all of our restructuring, the transactions are concentrated in the 1990s. Of the total acquisitions and divestments, 22 (81.5%) occurred in the 1990s. During those same years, only 65% of our sample firms were privatized. We observe 85% of the acquisitions and 79% of the divestments in the 1990s. The industry group with the largest number of acquisitions and divestments is the manufacturing sector. This is not surprising since the largest number of our sample firms are manufacturers. Somewhat surprising is that there were no acquisitions or divestments by newly-privatized utilities (an industry group that comprises 19% of our total sample). It is also somewhat surprising that acquisitions and/or divestments only occurred in 12 countries. That is less than one-third of the countries in our total sample. Analysis according to legal origin indicates that firms in countries with an common law legal system are less likely to restructure by acquisition and/or divestment. A total of 18 firms engaged in acquisitions/divestments. Of these firms, four (22%) are from common law origin countries. However, approximately 40% of the total sample firms are from common law origin countries. Finally, the proportions of acquisitions and divestments (segregated by OECD vs. non-OECD status) appear consistent with the overall composition of the sample.

D.

Other Factors: Macroeconomic and Institutional Environment The level of sophistication and intensity of capital market monitoring should influence the degree

of the newly privatized firms performance improvements. We expect that firms with shares trading in larger, more-developed markets should experience greater efficiency gains. We use GNP per capita in US$ to measure the development of the economy. To determine the effect of growth in the economy during the pre and post privatization window, we use the real GDP growth in the economy. To measure the level of capital market development and sophistication, we use the ratio of offer size (market value of the privatizing share issue) to total market capitalization. Since this value will be smaller for firms in larger financial markets, we predict a negative relation between the issue size/market cap ratio and the post-privatization efficiency gains. For private ownership to trigger performance improvements, the rights of the shareholder must be enforced. We expect that a stronger degree of shareholder rights protection will lead to greater postprivatization performance improvements. We use the LLSV Shareholders Rights Index (SRI) to measure how strongly a nations laws favor the interests of minority stockholders. The SRI takes on a larger value as the legal support of shareholder rights increases. Higher values of SRI should lead to greater postprivatization performance improvements.
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Data are from Mergerstat Review (as presented in Gaughan (2002)). Kaplan and Weisbach (1992) report a similarly larger proportion of acquisitions to divestments (using U.S. data from 1971-1982).

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The pressure of international product market competition may also force the newly privatized firm to operate more efficiently. Vickers and Yarrow (1992) contend that the introduction of competition is the driving force behind post-privatization performance improvements. Therefore, firms privatized in competitive industries may experience the largest efficiency gains. Accordingly, we test whether performance improvements are stronger in regulated utilities (which retain significant market power) or competitive firms (which must operate efficiently to survive in internationally competitive markets). To distinguish regulated utilities from competitive firms, we include an indicator variable, which has a value of one if the privatized firm is a telecom or an electric/water/gas utility. V. Empirical Results Our first round of empirical tests measures post-privatization financial and operating performance. Our data confirm that, following privatization, firms experience significant increases in profitability, efficiency, and real output in the three-year post-privatization period, compared to the average values from the three-year pre-privatization period. Table 3 summarizes our specific results. **** Insert Table 3 about here **** Having confirmed that newly privatized firms experience significant increases in profitability and efficiency, we next turn to our search for potential causes of these performance improvements. We begin by partitioning our total data into subsamples based on factors that the literature identifies as potentially important influences on the firms post-privatization financial and operating efficiency. We focus on the effect of changes in corporate governance and restructuring. **** Insert Table 4 about here **** Whether or not control passes to private investors may impact the performance of the newly privatized firm. Accordingly, we partition our data into two groups: a control sample (where private investors own at least 50% of the equity) and a no-control sample (where the government retains over 50% ownership). Table 4 summarizes the results of our comparison of these sub samples. Results show that while post-privatization profitability, output and efficiency for control firms are higher than increases for no-control firms; the capital expenditure is higher for no-control firms than for control firms. Firms with majority private investors (control firms) show average (median) increases in profitability of 2.26 percentage points (1.93 percentage points), while real sales climb 46 percentage points, from an average 80% of year-zero level during the three years before privatization (year 0) to an average of 126% of yearzero level afterwards (median increases from 68% to 150% of year-zero value). Sales efficiency increases by a stunning 114 percentage points, from 84% (77%) of year-zero level before privatization to 198% (142%) afterwards, while capital expenditure nearly triples, from an average 80% (68%) of year-zero level during the three years before divestiture to an average 228% (160%) for the three year post-sale

15

period. On the other hand, firms with majority government ownership (no-control firms) show average (median) increases in profitability of 2.23 percentage points (2.93 percentage points), in output of 107 percentage points (70 percentage points), in efficiency of 88 percentage points (66 percentage points ) and in capital expenditure of 163 percentage points (71 percentage points ). The difference is insignificant between the two groups for profitability, output and efficiency and is significant for capital expenditure. **** Insert Table 5 about here **** Changes in a newly privatized firms upper management may also trigger performance improvements. Table 5 presents the results for those firms that have had at least a 50% change in board of directors following privatization versus those experiencing less than a 50% change in board composition after privatization. The Wilcoxon test statistic shows profitability increases significantly for firms with greater than 50% change in board of directors, while it decreases, insignificantly, for firms with less than 50% change in board of directors. The Kruskal-Wallis test shows no significant differences between the two groups for any of the variables. **** Insert Table 6 about here **** Table 6 presents comparisons of firms that restructure versus firms that do not restructure. Our data indicate that restructured firms experience significantly larger decreases in employment and leverage. The mean employment decreases by 1,235 workers for restructured firms and increases by 1,278 workers for non-restructured firms. Mean leverage decreases by 9.45 percentage points for restructured firms but by only 2.99 percentage points for non-restructured firms. The Kruskal-Wallis test for employment is significant at the one percent level. For leverage, it is significant at the ten percent level.

B.

Regression Results In our multivariate regression models, the dependent variables represent percentage changes after

privatization in return on sales (ROS), level of real sales (RSALE), sales efficiency (SEFF), employment (EMP), real capital expenditure (CAPEX), and leverage (LEV), respectively. To explain these changes in post-privatization performance, we employ the following independent variables: state ownership, foreign ownership, employee ownership, restructured firms, regulated firms, the shareholder rights index (SRI), GNP per capita ($), offer amount to market capitalization, and real GDP growth. These variables are listed and defined in Appendix 2. Table 5 presents the results of our regressions. **** Insert Table 7 about here ****

16

B.1.

Profitability Ownership is the most significant determinant of changes in post-privatization profitability. First,

we identify a significantly negative relation between profitability and employee ownership. This suggests that a one percent increase in employee ownership leads to a 9% decrease in profitability improvements. Our finding that higher employee ownership leads to lower profitability improvements is consistent with Barberis, Boycko, Shleifer, and Tsukanova (1996) who conclude that providing equity incentives to existing employees does not add value. Additionally, the regression analysis reveals a significantly positive relationship between profitability and state ownership. This is puzzling since we expect performance improvements to increase as state ownership declines. It could be that a large residual stake gives the government greater incentive to encourage performance improvements, since it has more of the company left to sell in subsequent rounds. Finally, the regression analysis indicates that restructuring has the expected positive impact on profitability (although the effect is not statistically significant). Overall, it appears that corporate governance is a driver of the change in the profitability that generally follows privatization. B.2. Real Sales According to Table 5, as predicted, we find that higher private ownership (lower state ownership) leads to significantly greater output increases. The restructuring variable has an insignificant effect on output, perhaps because the impact of restructuring on change in output may be diminished if many firms restructure through divestments. Also, consistent with the predictions of Vickers and Yarrow (1991), the regression analysis shows a significant positive relation between output and competition. This also confirms the conclusions of Megginson, Nash, and Van Randenborgh (1994), who find that firms thrust into a competitive environment quickly become more productive. B.3. Efficiency The efficiency regression provides the strongest evidence of the value added by restructuring. Firms that restructure have significantly larger improvements in operating efficiency. Specifically, restructured firms show an 18 percentage-point greater increase in sales efficiency than firms that do not restructure. Since restructuring has an insignificant impact on employment (see section B.4), the efficiency improvements that result from restructuring are not simply due to job cuts. The restructuring apparently leads to a more efficient deployment of resources. Consistent with the results of other studiesparticularly those examining the transition economies, surveyed in Djankov and Murrell (2002) and most recently in Brown, Earle, and Telegdy 2006we find that foreign ownership contributes to stronger efficiency improvements after privatization. The significant, positive sign of the foreign ownership variable indicates that a one percentage point increase in foreign ownership leads to a 0.67 percent increase in post-privatization sales efficiency. We

17

expect this outcome since foreign ownership should result in an infusion of managerial talent, access to advanced technology, and entry into more lucrative product and capital markets. Finally, the amount of national wealth (GNP per capita) has a marginally significant, negative relation with post-privatization efficiency improvements. These results are consistent with Boubakri and Cosset (1998) and who also document strong efficiency improvements for firms in developing nations. Additionally, the level of financial market development also impacts post-privatization efficiency improvements. The significant, negative sign of the offer amount to market capitalization ratio indicates that firms in larger, more developed capital markets experience larger gains in efficiency following privatization. This is consistent with our expectations since firms in larger markets should be subject to greater scrutiny and capital market pressure. The more stringent monitoring apparently spurs the newly privatized firm to function with greater efficiency. B.4. Employment Ownership appears to significantly affect the changes in employment after privatization. As predicted, there is a significant, negative relation between foreign ownership and post-privatization employment levels. Foreign owners, who are less affected by political and social concerns, are more likely to reduce jobs if the divested firms are truly overstaffed. Additionally, our analysis yields the somewhat surprising result that higher state ownership leads to lower post-privatization employment. This result has been documented for transition economies by Lizal and Svejnar (2002) and Brown, Earle, and Telegdy (2006), but we are unaware of any other study documenting this for non-transition economies and this is unexpected since overemployment was common in state-owned firms. As with foreign owners, we expected larger amounts of private ownership would stimulate deeper cuts in job rolls. However, our results suggest that the state is also not hesitant to eliminate jobs, especially if such reductions are offset by increased profitability (as indicated by our ROS regression). This finding is also consistent with the proposition that partial privatizations give the state greater incentives to maximize value in order to maximize the future sale price of the governments remaining stake. Capital market characteristics also affect the level of changes in post-privatization employment. Specifically, our analysis shows that stronger protection of shareholder rights leads to deeper cuts in employment. This is consistent with Wurglers (2000) contention that stringent legal enforcement of investor rights empowers shareholders to object to overinvestment and limit inefficiencies (such as overstaffing). Furthermore, the development and sophistication of the nations capital market impacts postprivatization employment. The data indicate a significant positive relation between employment changes and the ratio of offer size to market capitalization. It may be that the closer monitoring of the analysts and sophisticated investors in these larger markets may drive the newly-privatized firms to seek efficiency improvements by lowering excessive employment.

18

VI.

Summary and Conclusions Over the last twenty years, privatization has changed the worlds economic landscape by reducing

the role of the state in many nations economies. The empirical literature (summarized in Megginson and Netter (2000), Djankov and Murrell (2002), Lpez-de-Silanes (2005), Nellis (2005), and Megginson (2005)) generally documents significant improvements in the financial and operating performance of newly privatized firms. Given the strong evidence of economic benefits of privatization, the pressing issue is no longer whether privatization leads to performance improvements, but rather why do these postprivatization performance improvements occur. This study seeks to provide some answers regarding the sources of the financial and operating improvements of newly privatized firms. We focus on the effects of restructuring and changes in corporate governance. Since governments frequently choose to restructure a firm prior to privatization through acquisitions, divestitures, and/or financial restructuring (i.e., re-capitalizations), we examine whether such restructurings contribute to increased improvements in post-privatization operating performance. Our results confirm that restructurings are important determinants of post-privatization performance. Specifically, our data provide evidence that restructuring leads to stronger efficiency improvements. Second, changes in corporate governance (especially changes in ownership) brought on by privatization may also contribute to the performance improvements. As expected, higher amounts of foreign ownership lead to larger gains in post-privatization efficiency and lower levels of employment. Additionally, we expect that firms will become more productive as state ownership decreases. Our results confirm that real output significantly increases as state ownership declines. Finally, we test for the impact of employee ownership on the performance of the newly privatized firm. Consistent with earlier empirical studies, profitability decreases as employee ownership increases. Therefore, the proportional post-privatization ownership (by the state, by foreign investors, and by employees) is an important indicator of the firms success following privatization.

19

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23

Table 1 Restructuring Activity by Newly-Privatized Firms This table documents the restructuring activities undertaken by our sample of newly-privatized firms. Our total sample, presented in Appendix 1, contains 161 firms from 39 countries. We categorize restructurings as: Acquisitions and Divestments (A&D), Financial, and Organizational/Operational (Org/Op).
Panel A Year 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Total

A&D 1 0 2 0 0 1 0 1 0 0 4 2 3 1 2 1 5 2 2 27

Financial 0 0 1 1 0 0 1 1 0 0 2 0 0 0 0 1 2 1 3 13

Org/Op 2 0 0 2 0 0 0 1 0 2 7 5 3 6 0 3 2 2 2 37

Total 3 0 3 3 0 1 1 3 0 2 13 7 6 7 2 5 9 5 7 77

% Total Res 3.9% 0.0% 3.9% 3.9% 0.0% 1.3% 1.3% 3.9% 0.0% 2.6% 16.9% 9.1% 7.8% 9.1% 2.6% 6.5% 11.7% 6.5% 9.1% 100.0%

Panel B Industry Financial Manuf Service Telecom Trans Utility Total

A&D 1 12 0 7 7 0 27

Financial 2 2 0 2 2 5 13

Org/Op 5 9 1 13 3 6 37

Total 8 23 1 22 12 11 77

% Total Res 10.4% 29.9% 1.3% 28.6% 15.6% 14.3% 100.0%

Panel C Country Australia Austria Brazil Canada China Denmark Estonia Finland France Germany Hungary Ireland Israel Italy Japan Kuwait Malaysia Mexico New Zealand Poland Spain Sweden Switzerland UK US Total Panel D Legal Origin English Non-English Total Panel E Development OECD Non-OECD Total

A&D 2 2 2 2 0 0 0 1 2 2 2 0 0 3 4 0 0 0 0 0 0 3 0 2 0 27

Financial 0 0 0 0 0 0 1 0 2 0 0 0 0 2 0 1 0 0 1 0 1 0 0 4 1 13

Org/Op 3 1 1 3 1 1 1 0 3 1 1 1 1 3 2 0 2 1 1 2 1 2 1 4 0 37

Total 5 3 3 5 1 1 2 1 7 3 3 1 1 8 6 1 2 1 2 2 2 5 1 10 1 77

% Total Res 6.5% 3.9% 3.9% 6.5% 1.3% 1.3% 2.6% 1.3% 9.1% 3.9% 3.9% 1.3% 1.3% 10.4% 7.8% 1.3% 2.6% 1.3% 2.6% 2.6% 2.6% 6.5% 1.3% 13.0% 1.3% 100.0%

A&D 6 21 27

Financial 6 7 13

Org/Op 15 22 37

Total 27 50 77

% Total Res 35.1% 64.9% 100.0%

A&D 23 4 27

Financial 11 2 13

Org/Op 30 7 37

Total 64 13 77

% Total Res 83.1% 16.9% 100.0%

Table 2 Restructuring Activity by Newly-Privatized Firms: Acquisitions & Divestments This table presents details regarding the choices made by newly-privatized firms to restructure through acquisitions and divestments.

Year 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 Total Industry Financial Manufacturing Service Telecom Transportation Utility Total Country Australia Austria Brazil Canada

Acquisition 0 0 1 0 0 1 0 0 0 0 3 1 2 0 1 0 2 1 1 13 Acquisition 1 6 0 3 3 0 13 Acquisition 1 1 1 1

Divestment 1 0 1 0 0 0 0 1 0 0 1 1 1 1 1 1 3 1 1 14 Divestment 0 6 0 4 4 0 14 Divestment 1 1 1 1

Total 1 0 2 0 0 1 0 1 0 0 4 2 3 1 2 1 5 2 2 27 Total 1 12 0 7 7 0 27 Total 2 2 2 2

China Denmark Estonia Finland France Germany Hungary Ireland Israel Italy Japan Kuwait Malaysia Mexico New Zealand Poland Spain Sweden Switzerland UK US Total Legal Origin English Non-English Total Development OECD Non-OECD Total

0 0 0 0 1 1 1 0 0 2 1 0 0 0 0 0 0 2 0 1 0 13 Acquisition 3 10 13 Acquisition 11 2 13

0 0 0 1 1 1 1 0 0 1 3 0 0 0 0 0 0 1 0 1 0 14 Divestment 3 11 14 Divestment 12 2 14

0 0 0 1 2 2 2 0 0 3 4 0 0 0 0 0 0 3 0 2 0 27 Total 6 21 27 Total 23 4 27

Table 3: Summary of Results from Tests of Predictions for the Full Sample of All Privatized Firms This table presents empirical results for our full sample of privatized firms. The table presents, for each empirical proxy, the number of useable observations, the mean and median values of the proxy for the three-year periods prior and subsequent to privatization, the mean and median change in the proxys value after versus before privatization, and a test of significance of the median change. We employ the Wilcoxon rank sum test (with its z-statistic) as our test for significance for the change in mean values. The final two columns detail the percentage of firms whose proxy values change as predicted, as well as a test of significance of this change. Finally, sales efficiency uses inflation-adjusted sales figures divided by the number of employees each year. Deflated sales per employee is normalized to equal 1.000 in year 0 so other year figures are expressed as a fraction of per capita output in the year of divestment. Real sales and real capital expenditure are computed similarly.
Variables N Mean Before (Median) Mean After (Median) Mean Change (Median) Z-Statistic for Difference In Means (After-Before) Percentage of Firms With Improved Performance Z-Statistic for Significance of Percentage

PROFITABILITY Return on Sales (%)

137

7.47 (5.29)

9.87 (7.37)

2.40 (2.08)

4.369*

77.14

7.65*

OUTPUT Normalized Real Sales

128

0.76 (0.64)

1.92 (1.42)

1.16 (0.78)

7.974*

82.81

9.839*

EFFICIENCY Normalized Sales Efficiency EMPLOYMENT Total Employment INVESTMENT Normalized Real Capital Expenditures LEVERAGE Debt to Assets (%)

108

0.87 (0.72) 30,510 (12,000) 0.79 (0.65)

1.88 (1.35) 31,082 (11,437) 2.43 (1.58)

1.01 (0.63) 571.76 (-562.33) 1.65 (0.93)

6.766*

82.41

8.845*

121

-0.537

47.93

-0.455

113

7.93*

89.38

13.59*

132

46.66 (41.68)

40.35 (34.04)

6.31 (7.63)

-5.06*

31.06

-4.70*

* indicates significance at the one percent level. ** indicates significance at the five percent level. *** indicates significance at the ten percent level.

Table 4: Comparisons of Performance Changes Following Privatization for Control Firms (Firms that have been Privatized by More Than or Equal to 50%) Versus No-Control Firms (Firms that have been Privatized by Less Than 50%)
This table presents comparisons of performance changes for Control Firms (companies that have been privatized by more than or equal to 50 percent) and No-Control firms (companies that have been privatized by less than 50 percent). The table presents, for each empirical proxy the number of useable observations, the mean and median values of the proxy for the three-year periods prior and subsequent to privatization, the mean and median change in the proxys value after versus before privatization, and a test of significance of the mean change. We employ the Wilcoxon signed rank test (with its z-statistic) as our test for significance for the change in mean values. The final three columns present the Kruskal-Wallis results for differences between the control subsample and the no-control subsample. The Krusual-Wallis test statistic mentions the p value using the chi-square approximation. Finally, sales efficiency uses inflation-adjusted sales figures divided by the number of employees each year. Deflated sales per employee is normalized to equal to 1.0 in year 0 so other year figures are expressed as a fraction of per capita output in the year of divestment.
Variables N Mean Before (Median) Mean After (Median) Mean Change (Median) Z-Statistic for Difference in Medians (After-Before) Kruskal-Wallis Results for Differences between subsamples Mean Rank Control No-Control KW Test Subsample Subsample Statistic p value

Return on Sales Control

72

6.10 (5.23) 9.10 (5.36) 0.80 (0.68) 0.86 (0.67) 0.84 (0.77) 0.88 (0.69) 32645 (13145) 26892 (11099) 0.80 (0.68) 0.93 (0.69)

8.36 (7.16) 11.33 (8.29) 2.06 (1.50) 1.93 (1.37) 1.98 (1.42) 1.76 (1.35) 34414 (12268) 26514 (10766) 2.28 (1.60) 2.56 (1.40)

2.26 (1.93) 2.23 (2.93) 1.26 (0.82) 1.07 (0.70) 1.14 (0.64) 0.88 (0.66) 1769 (-877) -378 (-334) 1.49 (0.92) 1.63 (0.71)

3.75* 79.2 2.35** 74.4 0.50

No-Control Real Sales Control No-Control Sales Efficiency Control

60

77 64

7.129* 74.3 4.91* 67.1 0.30

61

6.05* 54.9 3.57* 51.6 0.59

No-Control Employment Control

45

63

-0.94 60.0 -0.33 59.1 0.88

No-Control Capital Expenditure Control

55

62

6.25* 68.8 4.62* 57.3 0.07***

No-Control Total Debt to Total Assets Control No Control

62

67 59

49.37 (41.68) 46.08 (46.93)

43.53 (35.91) 39.70 (34.99)

-5.84 (-5.77) -6.38 (-11.94)

-3.27* 68.6 -3.64* 63.2 0.42

* indicates significance at the one percent level ** indicates significance at the five percent level *** indicates significance at the ten percent level 6

Table 5: Comparisons of Performance Changes Following Privatization for Companies with Greater than 50% Change in Board of Directors versus Less than or Equal to 50% Change in Board of Directors
This table presents comparisons of performance changes for companies with less than fifty percent change in Board of Directors and companies with greater than or equal to fifty percent change in Board of Directors. The table presents, for each empirical proxy the number of useable observations, the mean and median values of the proxy for the three-year periods prior and subsequent to privatization, the mean and median change in the proxys value after versus before privatization, and a test of significance of the mean change. We employ the Wilcoxon signed rank test (with its z-statistic) as our test for significance for the change in mean values. The final three columns present the Kruskal-Wallis results for differences between Companies with Greater than Fifty Percent Change in Board of Directors versus Companies with Less than or Equal to Fifty Percent Change in Board of Directors The KrusualWallis test statistic mentions the p value using the chi-square approximation. Finally, sales efficiency uses inflation-adjusted sales figures divided by the number of employees each year. Deflated sales per employee is normalized to equal to 1.0 in year 0 so other year figures are expressed as a fraction of per capita output in the year of divestment.
Variables N Mean Before (Median) Mean After (Median) Mean Change (Median) Z-Statistic for Difference in Medians (After-Before) Kruskal-Wallis Results for Differences between subsamples Mean Rank 50% < 50% KW Test BoD Change BoD Change Statistic Subsample Subsample p value

Return on Sales 50% change in BoD < 50% change in BoD Real Sales 50% change in BoD < 50% change in BoD Sales Efficiency 50% change in BoD < 50% change in BoD Employment 50% change in BoD < 50% change in BoD Real Capital Expenditure 50% change in BoD < 50% change in BoD Total Debt to Total Assets 50% change in BoD < 50% change in BoD

35

6.26 (5.48) 6.90 (4.86) 0.82 (0.71) 0.50 (0.51) 0.83 (0.80) 0.79 (0.59) 19935 (11478) 37188 (12158)

9.45 (7.14) 6.87 (5.83) 2.21 (1.40) 0.46 (0.44) 1.47 (1.13) 1.50 (1.13) 20896 (10756) 38228 (17605)

3.18 (1.66) 0.03 (0.97) 1.39 (0.70) -0.04 (-0.07) 0.64 (0.32) 0.71 (0.54) 961 (-723) 1040 (5447)

1.98** 41.0 0.97 41.9 0.86

39

34

4.24* 38.7 4.49* 38.3 0.93

42

23 30

2.25** 24.7 3.39* 28.8 0.34

26

0.512 32.8 -0.14 31.4 0.76

37

26

0.80 (0.71) 0.69 (0.50)

2.77 (1.34) 1.54 (1.23)

1.96 (0.63) 0.86 (0.73)

3.75* 38.0 4.13* 31.5 0.19

41

38

52.13 (53.79) 50.22 (51.32)

47.39 (40.16) 45.78 (43.52)

-4.74 (13.63) -4.43 (-7.80)

-2.81* 37.8 -2.04** 43.0 0.32

40

* indicates significance at the one percent level ** indicates significance at the five percent level *** indicates significance at the ten percent level 7

Table 6: Comparison of Performance Changes Following Privatization for Companies that Restructured versus Companies that Did Not Restructure
This table presents comparisons of performance changes for companies that restructured versus companies that did not restructure. The table presents, for each empirical proxy the number of useable observations, the mean and median values of the proxy for the three-year periods prior and subsequent to privatization, the mean and median change in the proxys value after versus before privatization, and a test of significance of the mean change. We employ the Wilcoxon signed rank test (with its z-statistic) as our test for significance for the change in mean values. The final three columns present the Kruskal-Wallis results for differences between firms that restructured and firms that did not restructure. The Krusual-Wallis test statistic mentions the p value using the chi-square approximation. Finally, sales efficiency uses inflation-adjusted sales figures divided by the number of employees each year. Deflated sales per employee is normalized to equal to 1.0 in year 0 so other year figures are expressed as a fraction of per capita output in the year of divestment.
Variables N Mean Before (Median) Mean After (Median) Mean Change (Median) Z-Statistic for Difference in Medians (After-Before) Kruskal-Wallis Results for Differences between subsamples Mean Rank Restructure No-Restructure KW Test Subsample Subsample Statistic p value

Return on Sales Restructure No-Restructure Real Sales Restructure

49 25

8.10 (5.76) 9.19 (5.37) 0.74 (0.67) 0.94 (0.78) 0.69 (0.62) 1.01 (0.85) 31461 (15003) 22972 (8229)

10.24 (8.49) 11.54 (7.82) 2.07 (1.55) 2.56 (1.65) 1.99 (1.36) 2.34 (1.96) 30226 (16331) 24250 (9817)

2.14 (2.73) 2.35 (2.45) 1.33 (0.88) 1.62 (0.89) 1.30 (0.74) 1.32 (1.10) -1235 (1327) 1278 (1588)

2.56* 51.8 2.61* 51.2 0.92

50

5.09* 48.4 5.53* 47.5 0.87

No-Restructure Sales Efficiency Restructure

45

39

4.57* 37.9 4.37* 37.0 0.85

No-Restructure Employment Restructure

35

42

-2.85* 34.0 1.46 49.4 0.003*

No-Restructure Real Capital Expenditure Restructure No-Restructure Total Debt to Total Assets Restructure No-Restructure

40

46 47

0.72 (0.56) 1.04 (1.01)

2.03 (1.44) 3.34 (2.95)

1.31 (0.87) 2.30 (1.94)

4.78* 47.5 5.49* 46.5 0.85

40 40

44.79 (38.42) 35.36 (27.79)

35.34 (29.77) 32.37 (27.73)

-9.45 (-8.64) -2.99 (-0.06)

-4.28* 36.9 -1.14 49.3 0.07***

* indicates significance at the one percent level ** indicates significance at the one percent level *** indicates significance at the one percent level.

Table 7: Regression Results to Identify Sources of Performance Improvements

Regression results to identify the sources of performance improvements in newly-privatized firms. The dependent variables in the six models are change in return on sales (ROS), change in real sales, change in sales efficiency (sales per employee), change in employment, change in real capital expenditure, and change in leverage respectively. Change in each of the dependent variable is defined as percentage growth rate of the average of the three years post privatization data over the average of three years preprivatization data. See Table 6 for a description of the explanatory variables. T-statistics are in parentheses. ROSA/ ROSB -10.882 (-0.07) 1.588 (1.74)c -0.825 (-0.51) -8.776 (-2.07)b 85.665 (1.46) 75.07 (1.19) 37.379 (1.27) -2.664 (-0.87) -0.004 (-0.67) -11.737 (-0.39) 0.0413 1.03 48 RSALEA/ RSALEB 59.649 (1.85)c -0.343 (-1.82)c -0.189 (-0.56) 0.277 (0.32) 13.259 (1.11) -20.599 (-1.59) -9.816 (-1.65)c 1.476 (2.34) -0.0004 (-0.41) 3.983 (0.66) 0.218 2.02c 47 SALEFFA/ SALEFFB 8.461 (0.38) 0.124 (0.90) 0.673 (2.50)b -0.009 (-0.01) 17.985 (2.17)b -0.611 (-0.07) 2.834 (0.63) 0.430 (0.97) -0.002 (-2.14)b -8.842 (-2.17)b 0.257 2.53b 41 EMPA/ EMPB 86.084 (1.67)c -0.905 (-2.85)a -1.736 (-2.93)a 1.640 (1.12) -18.112 (-0.95) -2.062 (-0.10) -30.612 (-2.94)a 1.917 (1.88)c 0.003 (1.62) 20.676 (2.20)b 0.239 2.43b 42 CAPEXA/ CAPEXB 52.044 (0.34) -0.303 (-0.40) -1.676 (-1.17) 7.492 (2.06)b 3.340 (0.07) -38.261 (-0.73) 6.693 (0.27) 3.503 (1.32) -0.003 (-0.54) 23.253 (0.91) 0.135 1.74 44 LEVA/ LEVB -3781.32 (-3.43)a 0.578 (0.10) 15.282 (1.46) 8.840 (0.30) -503.56 (-1.26) 624.29 (1.49) 105.67 (0.55) 91.07 (4.47)a 0.134 (3.62)a -218.54 (-1.16) 0.374 3.58a 40

Constant State Ownership Foreign Ownership Employee Ownership Restructured Firms Regulated Firms Shareholder Rights Index (SRI) Real GDP Growth GNP per capita ($) Offer to Market Cap Adjusted R-Squared F-Value Observations
a b

indicates significance at the one percent level indicates significance at the five percent level c indicates significance at the ten percent level.

Appendix 1: Sample Firms Privatized Through Public Share Offerings, 1961 to 1999. This table provides descriptive information for our sample of companies fully or partially privatized through public share offering during the period 1961 to 1999. COMPANY INDUSTRY ISSUE DATE US$ SIZE GOVT GOVT BEFORE AFTER AUSTRALIA Tabcorp Holdings Service 1994 504 100 0 CSL Manufacturing 1994 228 100 0 Qantas Transportation 1995 1070 100 75 Commonwealth Bank Financial 1996 3100 50.4 0 Telstra Telecommunications 1997 10530 100 66.6 AUSTRIA Omv Manufacturing 1987 117 100 85 Flughafen Wien Ag Transportation 1992 162 100 73 Voest-Alpine Ag Manufacturing 1992 104 100 51 Austria Tabak Manufacturing 1997 340 100 56 Bohler Uddeholm Manufacturing 1996 393 72.7 25 BRAZIL Petrobras Manufacturing 1997 534 100 79.2 CANADA Fishery Products Manufacturing 1987 134 100 0 Air Canada Transportation 1988 196 100 57 Potash Corp. of Saskatchewan Inc Manufacturing 1989 197 100 63 Telus Telecommunications 1990 835 100 40 Petro Canada Manufacturing 1991 478 100 81 Cameco Corp. Manufacturing 1991 86 100 76 Nova Scotia Power Corp. Utility 1992 675 100 69 Suncor Inc Manufacturing 1992 151 Alberta Energy Co Ltd Utility 1993 355 100 0 CHILE Soquimich Manufacturing 1983 100 0 Chilmetro Utility 1985 100 0 Cap Manufacturing 1985 82 100 53 Iansa Manufacturing 1986 100 0 CHINA China Steel Corporation Manufacturing 1991 195 100 91 Brillance China Automotive Holdings Ltd Manufacturing 1992 86 92 68 China Telecom Telecommunications 1997 4000 100 75 Huaneng Power Intl Utility 1998 142 100 75

10

DENMARK Kryolit Selskabet Oeresund Teledanmark COMPANY ESTONIA Estonian Telecom FINLAND Rautarurkki oy Kemira O.Y. Fortum Sonera FRANCE Saint Gobain Elf Aquitaine Compagnie Financiere de Paribas Compagnie Financiere de Credit Commercial Societe Generale Alsaciene de Banque Agence Havas Compagnie Financiere de Suez Banque Industrielle et Mobiliere Compagnie Generale d'electricite Credit Local de France SA Total SA Banque Nationale de Paris SA Rhone-Poulenc SA Credit Lyonnais France Telecom Pechiney STMicroelectronics GERMANY Volkswagen Veba Ivg Viag Deutsche Verkehrs Kredit Bank Deutsche Pfandbrief & Hypothekenbank AG Deutsche Telekom

Manufacturing Telecommunication INDUSTRY

1985 1994 ISSUE DATE

2894 US$ SIZE

50 90 GOVT BEFORE 100 99 100 97.5 100 100 67 100 100 100 40 100 100 100 73 34 100 78 100 100 10.5

0 51 GOVT AFTER 76.3 87 71 75.5 78.8 0 56 0 0 0 0 0 0 0 51 15 40 67 10 77 1

Telecommunications Manufacturing Manufacturing Manufacturing Telecommunications Manufacturing Manufacturing Financial Financial Financial Manufacturing Financial Financial Manufacturing Financial Manufacturing Financial Manufacturing Financial Telecommunications Manufacturing Manufacturing Manufacturing Manufacturing Service Utility Financial Financial Telecommunications

1999 1989 1994 1998 1998 1986 1986 1987 1987 1987 1987 1987 1987 1987 1991 1992 1993 1993 1999 1997 1998 1994 1961 1965 1986 1986 1988 1991 1996

221 101 240 573 1400 2091 493 2742 732 3577 405 2929 60 1331 340 906 4920 564 6960 7080 371 2000 315 206 84 339 11 1340 13300

100 100 100 100 100 100 74

20 36 55 60 75 53 65.6

11

GREECE OTE HUNGARY Matav OTP Bank COMPANY INDIA Gas Authority of India (GAIL) VSNL INDONESIA Indosat IRELAND Greencore Group PLC Northern Ireland Telecom Eireann ISRAEL Bank Leumi Bezeq ITALY Saipam Credito Fondiario Aeritalia Nuovo Pignone Stet Banco di Napoli Credito Italiano SPA AEM Autostrade Banca Nazionale del Lavoro Enel JAMAICA NCB Group Caribbean Cement Company JAPAN Nippon Telephone and Telegraph Japan Airlines Japan Tobacco Ltd Japan Railroad East

Telecommunications Telecommunications Financial INDUSTRY

1996 1997 1997 ISSUE DATE

398 1200 213 US$ SIZE

100 22.75 25 GOVT BEFORE 0 82 100 100 100 100 63.5 63.5 100 100 100 100 59 65 100 47.7 85 100 100 100 100 35 100 100

94 5.75 0 GOVT AFTER 0 65 68 49 0 23 61.5 54 80 79 84 82 50 58 51 0 0 65.5 0 0 88 0 81 50

Utility Telecommunications Telecommunications Manufacturing Utility Telecommunications Financial Telecommunications Manufacturing Financial Manufacturing Manufacturing Telecommunications Financial Financial Utility Transportation Financial Utility Financial Manufacturing Telecommunications Transportation Manufacturing Transportation

1999 1997 1994 1991 1993 1997 1998 1998 1984 1985 1986 1986 1991 1991 1991 1998 1999 1998 1999 1986 1987 1987 1987 1994 1999

42 527 1060 136 520 4300 52 223 74 28 59 60 264 323 140 900 4600 4600 18900 16 46 15097 2600 3400 5800

12

Japan Railroad West NTT DoCoMo KOREA Pohang Iron And Steel Korea Telecom Korea Electric Power COMPANY KUWAIT Arab Insurance Group MALAYSIA Malaysian Airlines Telekom Malaysia Tenaga Nasional Berhad MEXICO Telefonos De Mexico NETHERLANDS Koninklijke Ptt Nederland N.V. (Kpn) KLM DSM NEW ZEALAND Petrocorp Telecom Corporation Of New Zealand Contact Energy OMAN Oman Flour Mills POLAND Polifarb-Cieszyn T.C.Debica Polifarb-Wroclaw KGHM Polska Miedz PORTUGAL Banco Portugues Do Atlantico Sa Banco Espirito Santo & Commercial Electricidade de Portugal

Transportation Telecommunications Manufacturing Telecommunications Utility INDUSTRY

1996 1999 1988 1993 1999 ISSUE DATE

4400 18400 3400 100 750 US$ SIZE

100 100 100 100 100 GOVT BEFORE 100 100 100 100 30 100 55 100 100 100 100 90

67.1 51 71 79 GOVT AFTER 49.5 73 76 77 15 69 39 66 30 0 85 60 20 51 25 49 67 60 52

Financial Transportation Telecommunications Utility Telecommunications Telecommunications Transportation Manufacturing Manufacturing Telecommunications Utility Manufacturing Manufacturing Manufacturing Manufacturing Manufacturing Financial Financial Utility

1997 1985 1990 1992 1991 1994 1986 1989 1988 1991 1999 1986 1993 1994 1994 1997 1990 1991 1997

290 78 872 837 2170 3750 295 630 500 819 1420

1 56 30 415 382 385 2100

100 100 100 100 100 100 70

13

QUATAR Qatar Telecom SINGAPORE Singapore Intl Air Singapore National Printers Keppel Corporation Singapore Telecommunications Ltd COMPANY SPAIN Gesa Repsol Argentaria Amadeus Indra Red Electrica Espanola Telefonica SWEDEN Procordia Svenkt Stal Ab (Ssab) Celsius Pharmacia Ab SWITZERLAND Swisscom THAILAND Thai Airways TURKEY Netas - Northern Elektrik Telecommunikasyon Turk Otomobil Fabrikasi As (Tofas) Turkiye Is Bankasi UK British Petroleum Cable & Wireless British Aerospace Amersham Intl Associated Brit Ports British Telecom British Gas Rolls Royce

Telecommunications Transportation Manufacturing Manufacturing Telecommunications INDUSTRY

1998 1985 1987 1988 1993 ISSUE DATE

740 233 3 1950 US$ SIZE

100 77 100 68 100 GOVT BEFORE 94 100 100 66 100 21 100 48 100 58 100 100

55 63 63 30 93 GOVT AFTER 56 73 75 0 65 0 81 0 53 10 65.5 95

Utility Manufacturing Financial Service Manufacturing Utility Telecommunications Manufacturing Manufacturing Manufacturing Manufacturing Telecommunications Transportation Manufacturing Manufacturing Financial Manufacturing Manufacturing Manufacturing Manufacturing Transportation Telecommunications Utility Manufacturing

1986 1989 1993 1999 1999 1999 1997 1987 1992 1993 1994 1998 1992 1993 1994 1998 1979 1981 1981 1982 1983 1984 1986 1987

61 1140 850 433 349 4360 165 364 144 1040 5600 225 60 333 651 602 466 339 131 33 4763 8012 2234

100 12.3 51 100 100 100 100 100 100 100

79 0 46 50 48 0 49 50 0 0

14

British Airports Authority British Airways British Steel London Electricity Northern Electric South Wales Electricity Plc Seeboard Plc Manweb Plc Southern Electric Plc COMPANY U.K. (contd) Eastern Electricity Plc East Midlands Electricity Plc Yorkshire Electricity Group Plc Midland Scottish Power Plc Forth Ports Authority British Energy Railtrack USA Conrail United States Enrichment Corp VENEZUELA CANTV

Transportation Transportation Manufacturing Utility Utility Utility Utility Utility Utility INDUSTRY Utility Utility Utility Utility Utility Transportation Utility Transportation Transportation Utility Telecommunications

1987 1987 1988 1990 1990 1990 1990 1990 1990 ISSUE DATE 1990 1990 1990 1990 1991 1992 1996 1996 1987 1998 1996

2028 1327 4524 1010 570 470 589 550 1249 US$ SIZE 1249 1010 959 969 2933 45 2200 3100 1650 1425 1010

100 100 100 100 100 100 100 100 100 GOVT BEFORE 100 100 100 100 100 100 100 100 100 100 49

0 0 0 0 0 0 0 0 0 GOVT AFTER 0 0 0 0 0 10 12.5 0 0 0 0

15

Appendix 2: Definitions of Explanatory Variables Used in Regression Analysis The following table defines the empirical variables used in our regression models to identify potential determinants of post-privatization performance improvements.

Variable

Proxy For

Empirical Definition

State Ownership

Share Ownership Retained by Government Share Ownership by Foreign Investors

Percent of shares owned by the government after the privatization

Foreign Ownership

Percent of shares allocated to foreign investors at the time of issue

Employee Ownership

Share Ownership by Employees

Percent of shares allocated to employees at the time of Issue

Restructured Firms

Whether Firm Was Restructured

Indicator variable with value = 1 if firm has restructured in the form of organizational restructure and/or acquisitions and divestitures and/or financial restructure during the seven year window period, 0 if not.

Regulated Firms

Regulation versus competition

Indicator variable with value = 1 if firm is from a regulated industry, else 0. A firm is in regulated industry if it belongs to the utilities or telecommunication industries.

Shareholder Rights Index (SRI)

Protection of Shareholder Rights

Value from 0 to 5; higher values indicate stronger protection of rights of minority shareholders

Real GDP Growth

Growth in the Economy

Percentage growth in Real GDP for three year postprivatization period over the three year pre-privatization period

GNP per capita ($000) Offer to Market Capitalization

Development of Economy Capital Market Development

Gross National Product per capita in U.S.$ thousands.

Ratio of offer amount (market value of the privatizing share issue) to total market capitalization of countrys equity market

16

Appendix 3: Details of Firms that Restructured during the Privatization Window This table shows the firms that restructured and the manner in which they restructured. Name of Company AEM Air Canada Arab Insurance Group Associated British Ports Autostrade Banco Di Napoli Bezeq Bohler Uddeholm British Energy British Telecom Cable Wireless Celsius China Telecom Commonwealth Bank Compagnie Financiare De Suez Credit Lyonnais Deutsche Telekom 17 18 19 20 ELF ENEL Estonian Telecom 1998 1986 1996 1999 O, A A O, F O, F Priv Date 1998 1989 1987 1983 1991 1991 1994 1997 1996 1984 1981 1993 1992 1990 1997 1991 Type of Restructure F O F F O O, A O O, A O O, F O O, A O O O O, F

Obs. No. 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16

Details of Restructure Financial Restructure (restructure loan and refinance debt) General Organizational Restructure (completed in year of privatization) Financial Restructuring (overall restructuring of balance sheet) Financial Restructuring (debt write-off of Pound 84 Million) Organizational Restructure (functional re-organization) Organizational Restructure (in year of privatization); Acquisition Organizational Restructure (employment restructure; early retirement plan) Operational Restructure (restructure production sites); Acquisitions and Divestitments Organizational Restructure (redundancy and severance program) General Organizational Restructure; Financial Restructure (substantial debt write-off) General Organizational Restructure (at time of privatization) General Organizational Restructure; Acquisitions Organizational Restructure (unify cellular telephonic business; reorganization of telecom business) Operational Restructure (modernization of information technology processing and computer equipment) General Organizational Restructure General Organizational Restructure; Financial Restructure Organizational Restructure (re-organization of staff and R&D function); Acquisitions and divestments also took place during the same period. Acquisitions General Organizational Restructure; Financial Restructure General Organizational Restructure; Financial Restructure (equity re-capitalization)

17

Obs. No. 21 22 23 24 25 26 27 28

Name of Company Fishery Products Fortum Japan Railroad East Japan Railroad West KGHM Polska Miedz Matav Nova Scotia Power NTT DoCoMo OTP Bank

Priv Date 1988 1994 1996 1999 1998 1983 1992 1981

Type of Restructure A A O, A A O A O O, A

Details of Restructure Divestment (prior to privatization) Divestment Operational Restructuring (restructuring of retailing, convenience store, and restaurant business); Divestment Acquisitions and Divestments Organizational Restructure (employment and divisional reorganization; some redeployment of assets) Divestment Organizational Restructure Organizational Restructure; Divestment Organizational Restructure (following privatization, reorganize capital market service; realignment of divisions within OTP) Financial Restructuring (restructure long-term obligations to employees and retirees); Acquisitions Organizational Restructuring; Acquisitions General Organizational Restructuring; Acquisitions and Divestments Financial Restructuring (debt write-off prior to privatization) Organizational Restructure (re-organize management) Organizational Restructure (in year of privatization) Acquisitions and Divestments

29 30 31 32 33 34 35 36 Pechiney Petro Canada Petrobras Petrocorp Pharmacia Polifarb-Wroclaw Qantas

1992 1997 1991 1993 1988 1994 1994 1995

O F, A O, A O, A F O O A

18

Obs. No. 37 Railtrack

Name of Company

Priv Date 1997

Type of Restructure F, A

Details of Restructure Financial Restructuring (equity recapitalization in 1997); Acquisitions and Divestments Financial Restructuring (debt restructuring); Operational Restructuring (reorganization of management and overall operations) General Organizational Restructuring (beginning prior to privatization and continuing through prospectus date) General Organizational Restructuring; Financial Restructuring (debt write-off of Pound 508.70 million) Acquisitions and Divestments Acquisitions and Divestments (prior to privatization) General Organizational Restructuring General Organizational Restructuring Organizational Restructuring (managerial re-organization) General Organizational Restructuring General Organizational Restructuring General Organizational Restructuring Financial Restructuring (short and long-term debt reduction) Organizational Restructuring (layoffs and outsourcing) Organizational Restructuring (staff restructure and layoffs) Operational Restructuring (computerization; employment reorganization)

Red Electrica Espanola 38 39 40 41 42 43 44 45 46 47 48 49 50 51 52 Rhone Poulec Scottish Power SSAB STET TABCORP Telecom Corp Of New Zealand Teledanmark Telefonos De Mexico Telekom Malaysia Tenaga National U.S. Enrichment Corp. Swisscom Telecom Eireann Telstra 1995 1993 1991 1992 1991 1994 1991 1994 1991 1990 1992 1999 1992 1984 1994 O, F O O, F A A O O O O O O F O O O

O means firms restructured by means of operational and/or organizational restructure. Firms either had employee lay off, or changed centralization to decentralization of units. Total of 38 firms had management and/or organizational restructure. F means firms that had financial restructure. The most common mode of financial restructure is debt write-offs or debt-to-equity swaps. Total of 14 firms had financial restructure. A means firms restructured by means of acquisitions and divestiture. Divestitures of loss making units were more common than acquisitions. Total of 27 firms restructure by means of acquisitions and divestitures

19