Memorandum of Understanding and firm performance: A performance assessment of MoU adopted public sector enterprises in India

Abstract

The unsatisfactory performance of public sector made the Government introduce Memorandum of understanding and disinvestment. This study has been undertaken to analyze the performance of memorandum of understanding signed firms over the years. In addition, the performance of MoU-signed disinvested and MoU-signed non-disinvested firms have also been examined. Performance has been analysed using different ratios; return on equity, return on assets, net income productivity per employee and sales productivity per employee. In-line to analyze the effectiveness of data, random effect panel regression has been used to study the performance of sixty MoU signed PSEs for 15 years (2004-2018). The results indicate that the profitability of MoU signed non-disinvested firms is better than MoU signed disinvested firms. This could be possibly due to the more substantial managerial autonomy impact on the performance. Assets turnover ratio, leverage, and age have a significant effect on the performance of firms.