Effects of Privatization on Performance

Effects of Privatization on PerformanceThis seek use up investigates the dissemble of privatization on the Pakistan telecom Comp either Limited (PTCL) financial operation which is privatise in 2005.The unsettleds net income Profit Margin, Operating Profit Margin, Return on Assets and Earnings per Shargon and Number of trades of covers atomic number 18 used as histrionics for financial public presentation. The paired-samples t try on for mean difference has been used for comparability the pre and post privatization capital punishment. epitome of the financial entropy shows decline in the last benefit rim, direct profit margins, return on assets and earnings per voice aft(prenominal) the privatization but the force is in probatory for all the variables except the operational profit margin. The offsprings of privatization on employees performance and management remain a potential problem and issue for further research due to shortfall of resources and knowledge .Effect of Privatization on PerformancePoor performance of many companies and universe institutions in general has shown that in principle the government is not a good businessman. In this regard Privatization, a global phenomenon considered as a tool that leads to economic growth, increase in productiveness, efficiency in drill of resources and expansion in exposeput and employment. The rational consumer takes benefits from contestation among private firms in the form of relegate quality services and low prices especially in confideing, air travel and telecommunication fields. Due to rigidity in our culture, universe Sector companies do not become flexible and more offendicipating as compared to Private companies. In general, it can be claimed that privatization is a part of a broader economic policy which is referred to as the economic release or connecting to the world economy by rough governments. Privatization is the process of changing the conditions of political activities so that the major context is batched but the atmosphere of the sectors counterchanges and the personnel of atmosphere and conditions of markets on companies performance is likely to consider private sectors mechanisms telecommunication plays a vital use in the economic development of any farming. PTCL was privatized in 2005. Due to the privatization of PTCL, overall financial performance and the share prices of the PTCL became volatile. This character of this subscribe to is to study dynamic aspects of privatization and compare the pre and post privatization financial performance of the kindly club.An overview of PTCLIn 1947, after independence, Pakistan had an insufficient telecom base. Only 14,000 land lines were in that location in whole country and only one plane section of bring forward and Post Telegraph. In 1962 these two departments were alienated as postal department and Telephone andTelegraph Department (TT). Pakistan started gradually enhancement in telecommunication sector in 1990. The brief history of PTCL is as followsTelegraph and Postal Department was launch in 1947.Telephone and Telegraph Department was established in 1962.Pakistan Telecom Corporation was established in 1990-1991.PTCL was listed in the Karachi line Exchange in 1996.Internet and mobile subsidiaries was established in 1998.Policies of Telecom sectors were finalized in 2000.Deregulation policy of Telecom sector was announced in 2003.Objectives of ResearchThis research study aims to examine the import of firms privatization on the performance of the Pakistan Telecommunication Limited (PTCL). The objectives of the study are as followsTo evaluate impact of privatization on the financial performance of PTCL.To understand whether privatization how much privatization is utileTo military service policy makers and early(a) authoritative bodies regarding decision making about privatization. writings ReviewMemon (2007) plead that privatization and the preparat ions for privatization are very important to minimize the affectionate be and dislocations caused by such initiative. Most South Asian countries make water come to realize that privatization for the purpose of reducing fiscal deficits has caused them to off-load those enterprises which are exhalation making first. Such action has not inspired private sector confidence, and has sequeled in large-scale worker retrenchment. Privatization is the key factor that enables markets to work powerful and appropriately. According to Megginson Netter (2006) from last two decades most countries of the world shifted their firms from state willpower to privatization. In 1999 the revenue of privatization firms was $ 1 trillion around the globe.Given the immensity of the subject, a lot of studies down been performed to analyze the impact of privatization in a number of countries. Taghizadeh (2009) compared 12 privatized telecom corporations with 12 non-privatized (governmental) ones regard ing their per capita cost of operating, per capita cost to fix damages and per capita wage and costs of labor maintenance and conclude that the costs were write down in privatized centers regarding all three above mentioned domains. A new-fashioned study (Farinos et al., 2007) while investigating the companies privatized in Spain through the old age 1990-2001 argue that privatization has had a great impact on efficiency, sale income and employment. Warzynski (2003) in his study of 300 Ukrainian firms finds that competition does not induct a solid effect on firm performance measured by productivity and profitability while privatization has a marginal positive significant effect on profitability and an insignificant effect on productivity. He points out that, that competition and privatization might be complementary measures, as he finds that competition increases the performance of privatized firms. Boubakri et al. (2005) study the post privatization corporate governance of fir ms and show that performance gains are associated with the type of dominant owners. Choi and Hassan (2011) argue that Privatized banks, on ordinary, perform better than established banks, whereas this is not true where we do not consider country differences across privatizations. They conclude that although governance and foreign ownership are importantly correlated with decreased performance release of privatized banks relative to the established bank group, banking freedom (regulations) and extensive deposit insurance schemes in respective economies are associated with increased performance deviation. A recent study (Okten Arin, 2006) on the effect of privatization argues privatized firms improve productive efficiency by increasing their capital and diminish their labor endowment. But this effect disappears when we control for changes in market complex body part using a measure for market concentration. then, while private ownership has a robust positive effect on productive efficiency, whether gains in productivity will be passed on to consumers in the form of lower prices will depend on the market structure ensuing from privatization. Kerr et al., (2008) canvass the privatization process in vernal Zealand and Australia through which they confirmed that the performance of companies after being privatized has improved greatly and privatization has increased the annual growth of New Zealand companies up to 12% and Australian companies up to 9%. Another study (Sarboland, 2012) conducted in Iran conclude that privatization has increased the overall financial performance of the corporation, however financial (debt) supplement ratios likewise increase, which reflects the companys poor performance in the years after privatization because in such a situation creditors will have little assurance and, moreover, in the view of lenders the little financial (debt) leverage ratio, the better.Some research studies found average performance after reforms, wher eas, some studies found positive effect of reforms. However, most of the literature suggests that there is a significant copulation between privatization and efficiency and due to the importance and the role that privatization has in increasing efficiency and optimum use of resources, more research is needed to confirm or reject the findings of previous studies. To do so, this circulating(prenominal) study has been tried to investigate the relation between privatization and efficiency in PTCL.MethodologyThe study basically focuses on the impact of Privatization on the financial performance of PTCL. Since the domain is PTCL, financial ratios of years 2000-2004 ( in advance being privatized) and financial ratios of years 2005-2009 (after being privatized) have been analyzed, research population and sample are the same. nurture and data needed for this research has been collected from the annual reports of PTCL. Since used data was obtained from company documents and financial recor ds and accounting, the data is considered reliable. For measuring financial performance the sideline quad variables have been usedOperating Profit MarginNet Profit MarginReturn On EquityEarnings per shareNumber of Share tradeIn this study, to analyze data obtained from documents acquirable in finance department, first, after separating and identifying the data of two periods (i.e., after and before privatization), the paired-samples t test for mean difference has been applied to analyze the data. This test explains volatility and significance of the variables, with the assumptions that the distribution of the variable is normal and that the variance of the variable is same in both set of populations. The test id done with helper of Microsoft excel and SPSS.Analysis and FindingsRefer to Table.1 in appendix, the shows summary of top of Paired-samples t test for the variable operating profit margin. Mean honour of the operating profit margin is lower in the post privatization per iod. On the other hand, standard deviation is higher in the post privatization period as compared to pre privatization period. It indicates that privatization has negative impact on the net profit margin moreover, it has also become more volatile after privatization. Whereas, the significant value is less than 0.05 which indicates that significant change has been observed in the operating profit margin after privatization.Refer to Table. 2, 3, 4 in appendix, the result shows summary of result of Paired-samples t test for the variable Net Profit Margin, Return on Equity, and Earning per Share respectively. Results show that all of these three variables have declined after privatization, and have become more volatile. The significance value is greater than 0.05 which indicates that changes in these variables are not statistically significant.Refer to Table. 5 in appendix, the result summarizes result of paired t test for the variable Number of trades. The mean value of the Number of t rades is almost double in the post privatization whereas, the standard deviation for the number of trades is high in the post privatization period. P or significant value for the variable Number of Trades is highly significant as it is less than .005 indicating that the number of trades per day is significantly affected due to privatization.Conclusion ground on the results obtained, it was shown that there is a significant effect of privatization on the average number of trades of shares. This effect is being found positive as well. However, Analysis of the financial data shows decline in the financial performance of the company after privatization measured by operating profit margin, net profit margin, return on equity and earnings per share ratio. These entire four variables show decline in the post privatization period but the change is significant only in the variable operating profit margin. Hence we can conclude that privatization of PTCL has not been found analytically favora ble. It is recommended, based on the result of the research, the legislative agencies should make appropriate policies to achieve a fitted market for Pakistan. Information clarification, choice of investor and a transparent privatization process should be the top priorities of authoritative bodies in order to make privatization more effective and efficient. As suggested by Zeitun and Tian (2007) a privatization reform should go gradually and government should provide all necessary social securities to reduce the negative social impact of a firms liquidation.Issues for Future ResearchMany issues are not covered during the study due to shortage of resources and time. Based on the findings of the ongoing research the following suggestions are recommended for further researchTo examine the relation between privatization and management performance.To examine the impact of privatization on employees sense of bank line security.To examine the failures of financial ratios in decision mak ings.To examine the analysis of financial ratios in decision makings.To examine the impact of privatization on staffs efficiency.