Partial Privatization and Performance of Privatized Soes: The Evidence from Indonesia

Abstract

Using 214 observations from data collected on 15 State Owned Enterprises (SOEs) in Indonesian that have beenpartially privatized from year 1991 to 2007, the research employs Wilcoxon signed-rank test to assess the impactof partial privatization on the performance of these firms. It uses panel regression to investigate the factorsaffecting the success or failure of privatization.Unlike what mainstream theories propose and what most empirical studies report, given Indonesian context, thispaper finds that privatization positively affect the performance of partial privatized SOEs in almost all of theperformance measures employed, both in the short term and long term period. Further investigation also revealsthat residual state ownership has negative effect all the time, while the positive impact of the number ofgovernment commissioners tend to decrease; on the other hand the favorable impact of independentcommissioner has a tendency to be greater in the long term. Externally, although the magnitude of thecontribution is very marginal in comparison with other predictors, the positive impact of the size of stock marketalso continues to grow along time.The government commitment to improve the performance of privatized SOEs through better monitoring andadequate incentive plan and the development of capital market appear to be key success of privatization case inIndonesia. This paper suggests that, the gradual and partial Indonesian privatization can be an alternative modelfor other developing countries across the world.

Keywords: Partial Privatization, Performance, Indonesia, State-Owned Enterprises