Has privatization of state-owned enterprises in Iran led to improved performance?

Purpose – The purpose of this paper is to study the effect of organizational change and privatization on the performance of state-owned enterprises (SOEs) using the data from Iranian firms during the period 1998-2006, and to test whether privatization leads to improved performance. Design/methodology/approach – The performance of these firms before and after privatization was examined. Pooled regression models were employed to assess the effect of privatization on performance indicators. Findings – The results show that privatization has not had a positive effect on the profitability of the firms listed on the Tehran Stock Exchange; rather, the effect has been negative. Moreover, the results reveal that privatization of these firms has had no effect on their sales effectiveness and efficiency; instead, the debts and risks of these firms has increased. Further, ownership reform is needed to remedy the situation. Research limitations/implications – The paper focuses on the effect of privatization on firm performance. Future research can consider the effects of privatization on other aspects such as efficiency and productivity. Practical implications – The implications of the study are discussed in relation to the organizational changes that occur in the transition from public to private ownership. This study shows that improved performance of privatized firms cannot be taken for granted merely by ownership change. In other words, privatization must be accompanied by other economic adjustments such as adjustment of the capital market and the national banking system as well as formulation of corporate rules and regulations. Originality/value – Privatization and organizational change of Iranian firms is an important issue and this paper is the first to provide a new approach regarding the effect of privatization of SOEs on their performance.