Abstract
The impact of privatization on the performance of firms is widely debated in the economic literature. Under the philosophy of a New Political Economy, structural reforms in the form of liberalization and privatization started in 1991 in the Indian economy. This led to the disinvestment of a large number of central and state public sector enterprises. However, due to limited studies and mixed findings, the effect of disinvestment on the performance of public sector firms is inconclusive in the Indian market. The major aim of the present study is to revisit India’s disinvestment policy and examine the market response to disinvestment events in the utility sector under the improved business environment in the past decade. The study employs an event study technique on a sample of ten leading utility sector firms. The NIFTY-50 and NIFTY-CPSE indices are used to calculate market returns. The results imply that even better institutions fail to moderate partial privatization, and successive partial privatization is insufficient to bring efficiency and change management practices. It is because successive disinvestment keeps the fundamental ownership and management ethos the same. The findings warrant regulators addressing firm moderating factors in “window dressing” before going public for better privatization outcomes.
Similar content being viewed by others
References
Ahuja G, Majumdar SK (1998) An assessment of the performance of Indian state-owned enterprises. J Prod Anal 9:113–132
Armitage S (1995) Event study methods and evidence on their performance. J Econ Surv 9(1):25–52
Arun TG, Nixson FI (2000) The disinvestment of public sector enterprises: the Indian experience. Oxf Dev Stud 28(1):19–32
Bennett J, Maw J (2003) Privatization, partial state ownership, and competition. J Comp Econ 31(1):58–74
Binder J (1998) The event study methodology since 1969. Rev Quant Financ Acc 11:111–137
Brown SJ, Warner JB (1980) Measuring security price performance. J Financ Econ 8(3):205–258
Brown SJ, Warner JB (1985) Using daily stock returns: the case of event studies. J Financ Econ 14(1):3–31
Brown JD, Earle JS, Telegdy A (2006) The productivity effects of privatization: longitudinal estimates from Hungary, Romania, Russia, and Ukraine. J Polit Econ 114(1):61–99
Chakrabarti AB, Mondal A (2017) Can commercialization through partial disinvestment improve the performance of state-owned enterprises? The case of Indian SOEs under reforms. J Gen Manag 43(1):5–14
Comstock A, Kish RJ, Vasconcellos GM (2003) The post-privatization financial performance of former state-owned enterprises. J Int Finan Markets Inst Money 13(1):19–37
Dholakia AR, Dholakia RH (2022) Disinvestment and Privatization of Central Public Sector Enterprises in India: Need and Progress. In Studies in International Economics and Finance: Essays in Honour of Prof. Bandi Kamaiah (pp. 217-234). Singapore: Springer Singapore
Dimson E (1979) Risk measurement when shares are subject to infrequent trading. J Financ Econ 7(2):197–226
Dordi T, Weber O (2019) The impact of divestment announcements on the share price of fossil fuel stocks. Sustainability 11(11):3122
Dyckman T, Philbrick D, Stephan J (1984) A comparison of event study methodologies using daily stock returns: a simulation approach. J Account Res 22(1):1–30
Erichsen K, Rhatigan AM (2021) Does fossil fuel divestment contribute to the clean energy transition?: an event study on fossil fuel divestment announcements. Master’s thesis
Estrin S, Hanousek J, Kočenda E, Svejnar J (2009) The effects of privatization and ownership in transition economies. J Econ Lit 47(3):699–728
Ghosh S (2009) Do productivity and ownership really matter for growth? Firm-level evidence. Econ Model 26(6):1403–1413
Gupta N (2005) Partial privatization and firm performance. J Financ 60(2):987–1015
Javid AY, Malik H (2016) Performance and capital structure of IPOs in Pakistan from 2000 to 2015. Financ Innov 2:1–19
Jia J, Sun Q, Tong WH (2005) Privatization through an overseas listing: evidence from China’s H-share firms. Financ Manage 34(3):5–30
Kumar V, Ganguly S, Ghosh P, Pal M (2020) The impact of privatization of IDBI bank in Indian economy. Int J Res Eng Sci Manag 3(12):59–63
Mandiratta P, Bhalla GS (2017) Pre and post disinvestment performance evaluation of Indian CPSEs. Manag Labour Stud 42(2):120–134
Mandiratta P, Bhalla GS (2021) Disinvestment in Indian central public sector enterprises: a performance improvement measure. J Econ Adm Sci 37(4):496–521
Megginson WL, Netter JM (2001) From state to market: A survey of empirical studies on privatization. J Econ Lit 39(2):321–389
Naib S (2022) Privatisation in India: Journey and Challenges. Routledge
Okten C, Arin KP (2006) The effects of privatization on efficiency: how does privatization work? World Dev 34(9):1537–1556
Pandey DK, Jaiswal AK (2017) Impact of demonetization on indian stock market-an empirical study. Al-Barkaat J Finance Manag 9(2):46–66
Pandey DK, Kumari V (2020a) Effects of merger and acquisition announcements on stock returns: an empirical study of banks listed on NSE and NYSE. Rev Finance Bank 12(1):49–62
Pandey DK, Kumari V (2020b) Performance of the Indian tourism and hospitality stocks during the 2019-nCoV outbreak-an event study using stocks listed on the NSE. Orissa J Commer XXXXI(2):19–30
Pandey DK, Kumari V (2021a) Event study on the reaction of the developed and emerging stock markets to the 2019-nCoV outbreak. Int Rev Econ Finance 71:467–483. https://doi.org/10.1016/j.iref.2020.09.014
Pandey DK, Kumari V (2021b) Impacts of corporate announcements on stock returns during the global pandemic: evidence from the Indian stock market. SSRN. https://doi.org/10.2139/ssrn.3851438
Pandey DK, Kumari V (2021c) Event study on the reaction of the developed and emerging stock markets to the 2019-nCoV outbreak. Int Rev Econ Financ 71:467–483
Posnikoff JF (1997) Disinvestment from South Africa: they did well by doing good. Contemp Econ Policy 15(1):76–86
Radić M, Ravasi D, Munir K (2021) Privatization: implications of a shift from state to private ownership. J Manag 47(6):1596–1629
Rai VK, Pandey DK (2022) Does privatization of public sector banks affect stock prices? An event study approach on the Indian banking sector stocks. Asian J Account Res 7(1):71–83
Ramesh A (2015) Return volatility around national elections: evidence from India. Procedia Soc Behav Sci 189:163–168
Reddy G (2018) Impact of general elections 2014 on Indian stock market with special references to the stock of select companies in BSE. Int J Manag Stud 5(3):123–132
Sehgal S, Kumar M, Gupta P (2014) Public sector disinvestment in India: price reactions and underpricing issues. Glob J Emerg Mark Econ 6(2):181–202
Shah P, Arora P (2014) M&A announcements and their effect on return to shareholders: an event study. Account Finance Res 3(2):170–170
Sheen Low F, Ullah SS, Sepasgozar SM, Lee CL (2020) Smart digital marketing capabilities for sustainable property development: a case of Malaysia. Sustainability 12(13):5402
Singh BP (2021) Institutional quality and poverty reduction in BRICS. Poverty Public Policy 13(4):335–350
Toshtemirovich MZ, Sayfiddinovich MF (2020) Importance of privatisation of commercial banks (experience of China’s banking system). EPRA Int J Econ Bus Manag Stud (EBMS) 7(2):51–63
Funding
No funding was received for this work.
Author information
Authors and Affiliations
Corresponding author
Ethics declarations
Conflict of interest
The authors declare no potential conflicts of interest.
Additional information
Publisher's Note
Springer Nature remains neutral with regard to jurisdictional claims in published maps and institutional affiliations.
Rights and permissions
Springer Nature or its licensor (e.g. a society or other partner) holds exclusive rights to this article under a publishing agreement with the author(s) or other rightsholder(s); author self-archiving of the accepted manuscript version of this article is solely governed by the terms of such publishing agreement and applicable law.
About this article
Cite this article
Tripathi, S., Singh, B.P. Does disinvestment affect stock prices? An event study approach on the Indian public sector stocks. J. Soc. Econ. Dev. (2024). https://doi.org/10.1007/s40847-024-00350-8
Accepted:
Published:
DOI: https://doi.org/10.1007/s40847-024-00350-8