Does divestiture matter : a framework for learning from experience

Abstract

Transferring ownership and control of enterprises from the public to the private sector has recently attracted great interest around the world. Several developed and developing countries have already divested varying portions of their public enterprise (PE) sectors, and many others are planning to follow suit. This paper provides an analytical framework for assessing the arguments for divestiture and for evaluating the lessons of experience. Its aim is to provide researchers with a mechanism to analyze the divestiture phenomenon more rigorously than has been attempted thus far. Ultimately, the findings of such analysis will enable policymakers to form more realistic expectations about the results from undertaking divestiture decisions and the conditions necesssary for attaining the maximum benefits from the application of this instruments. This paper summarizes the rationale for divestiture, reviews the empirical evidence, and then proposes a framework for undertaking an empirical investigation ofthe performance of divested firms. The paper is confined to partial equilibrium analysis, even though it addresses the fiscal impact of divestiture. It assumes a small sample setting, thus precluding econometric analysis. The paper's overall objective is to construct a framework for assessing the advantages and disadvantages resulting from the sale of a single enterprise, not for assessing a country's overall disvestiture program.Economic Theory&Research,Environmental Economics&Policies,Banks&Banking Reform,Public Sector Economics&Finance,Health Economics&Finance