State-Owned and Privately-Owned Firms : An Empirical Analysis of Profitability, Leverage, and Labor Intensity

We present empirical evidence on the relative profitability, leverage, and labor intensity of government-owned and privately-owned firms. Cross-sectional analysis of a sample of very large firms indicates that those owned by governments are significantly less profitable than those held privately. They are also more highly leveraged and more labor intensive. We conduct a time series analysis of privatized firms and find little evidence that privatization enhances profitability. In our sample profitability improves immediately before privatization. The evidence on subsequent improvement is mixed. Some measures of profitability are significantly less after privatization than just beforehand. The evidence suggests that governments efficiently restructure at least some firms before selling them, but that the actual change of ownership does not give rise to further efficiency gains subsequently