Privatization of Vietnamese Firms and Its Effects on Firm Performance

Abstract

The paper analyzes the effects of privatization on the performance of firms switching their ownership from state-owned to private-owned ownership. By using difference-in-difference with control variables and propensity score matching techniques, this study overcomes some shortcomings in previous studies on the effect of privatization on performance in transition economies such as no control of selection bias and the inadequateness to single out the privatization effect from the concurrent effects of other economic factors. We find that a shift from state or collective ownership to private ownership can consistently enhance the performance of switchers in terms of profitability. This suggests that privatization is an efficient way to improve the financial performance of Vietnamese state-owned enterprises. This study contributes in existing literature by overcoming methodological shortcomings of previous studies on the effect of privatization on performance in transition economies such as no control for selection biases due to non-random drawn characteristics of privatized sample and an inadequate control for concurrent effects of other economic factors.