Privatization strategy for the improvement of Indonesian state-owned enterprises performance

• Main Author: Muchlasin, NoFirstName
• Format: text
• Language: English
• Published: Animo Repository 2003
• Subjects: Government business enterprises > Indonesia; Business enterprises; Privatization; Strategic planning; Business Administration, Management, and Operations
• Online Access: https://animorepository.dlsu.edu.ph/etd_doctoral/38; https://animorepository.dlsu.edu.ph/context/etd_doctoral/article/1037/viewcontent/CDTG003702_P__1_.pdf
• Institution: De La Salle University

Privatization of State Owned Enterprises (SOEs) has become an important phenomenon in both developed and developing countries. By and large governments have been selling SOEs to private investors in order to improve their firms’ performance through the discipline of private ownership, as well as to spur state revenue increase without raising taxes. SOEs are believed to be less efficient than private firms for many reasons. They lack incentives to perform; they are characterized by unprofessional persons placement and insufficient autonomy for making decision. This unfavorable circumstance overwhelmed by the assignment to achieve a variety of goals covering both commercial and social or even political functions and multi-faceted missions have caused SOEs to fail in the attainment of their objectives. The Indonesian government has applied a privatization program since 1988 as a part of sustainable SOEs restructuring to boost up their efficiency as well as their productivity and ultimately their performance improved accordingly. Based on this respect, the study is conducted to obtain statistical significant association between privatization or ownership transformation and SOEs performance. The study examines the impact of privatization on firm performance measured by financial and operating ratios commonly called “flow” measures, namely: profitability, operating efficiency, capital investment spending, leverage and dividends payout. The periods 5 years before and 5 years after privatization of 12 SOEs has been cited as sample. The sample, in turn, consists of going public and those not going public (there is one firm which covers 2 years before and after privatization for it has just been privatized in 2000). Wilcoxon Signed-Rank Test is utilized to test for significant changes in the variables and another t-test also employed to test the difference between means before and after privatization. The results of the study show the surge in all financial and operating performance either in Indonesian currency or ratios after the SOEs have been privatized. Profitability, operating efficiency and dividends payout have statistical significant difference. Capital investment spending and leverage, on the other hand, have weak association with privatization. Many factors have been identified to explain the performance improvement after the firm ownership was transformed to private, that is: red tape reduction, placement of professional workers, clearer function and goals, market share increase including global market penetration, more effective monitoring activity and rationalizing employee’s performance. A comparison of the results of this study with the findings or evidences documented by researchers from the studies conducted in developed countries such as American and European countries and developing countries such as Asian and African countries, shows that the selected ratios i.e.: efficiency, output and dividend increases after privatization are not so far from weighted average, but profitability, investment, employment and leverage yielded results below weighted average. The findings of this study underline the experiences of numerous countries in the world that privatization will generally lead to greater SOE performance. Consequently, a country which pursues a SOE privatization program is likely to generate more benefits for itself in the long-term.