Can partially privatized SOEs outperform fully private firms? Evidence from Indonesia

Privatization has been widely accepted as an effective avenue to improve the performance of State-Owned Enterprises (SOEs) and reduce the performance gap between SOEs and private firms. Since the 1990s, many SOEs in Indonesia have been partially privatized to optimize their potential. This study investigates if, following their privatization, performance gaps still exist between the partially privatized SOEs and private firms listed on the Indonesia Stock Exchange. Contrary to the common findings that governmental ownerships are associated with lower firm performance, this study finds that the financial performance of partially privatized SOEs was at least as good as that of private firms for the 13 consecutive years in the sample. In some years, the financial performance of the partially privatized SOEs was significantly higher than those of the private firms. A further analysis reveals that the higher financial performance of the privatized SOEs was not associated with opportunistic earnings management.