The Determinants of Post-Privatization Efficiency Gains: The Taiwanese Experience

The impact of privatization on economic performance remains controversial. In this article, labour productivity gains pre- and post-privatization are compared using a sample of firms privatized in Taiwan between 1989 and 2002. To control for economic environmental effects independent of ownership, performance is assessed relative to the average performance of other firms in the same industry over the same period. Also, using an analysis of covariance (ANCOVA) model, the study examines the direct effects of competition, the continuing presence of state-appointed board members and the pre-privatization financial health of enterprises on productivity gains. In addition, the study considers how these different variables may interact to explain performance changes. The results underline the importance of competition in promoting productivity gains but, more surprisingly, find that continued majority government representation on boards seems to have no significant effect on labour productivity. The study does find a relationship between financial health under state control and productivity gains following privatization. Later in the article, performance is also measured in terms of profitability, and the results are the same