Privatization: A Catalyst for the Profitability of French Companies: Empirical Validation

Abstract

The aim of this paper is to test the static and dynamic effects of the long-term privatization of public companies, on the one hand on their economic and financial profitability, and on the other hand on their stock market performance. To achieve this goal, we used a sample of 14 French companies observed during the period 1986-2014. The econometric approach used in this study is of the longitudinal type, the data cover a horizon of seven years (three years before privatization, the year of privatization and three years later), while applying tests of median differences (Wilcoxon test) and mean difference (Student's test), applied to the two series of averages of profitability ratios and market performance indices calculated before and after privatization. The empirical results indicate firstly that there is a significant static effect for most companies on the profitability ratios (ROA, ROE), as well as on the stock market performance indices (BHR, BHAR), except the ratio of investment expenditure that is not statistically significant. Secondly, although the coefficient of the variable TP (expressing the interaction between the variables T and P) to only five positive signs out of 14 firms, there is a good linear adjustment (R2) between the independent variables (the time variable T, the privatization dummy variable P) and the dependent variable (Performance), which has just confirmed the dynamic efficiency of privatizations.