Privatization, Transparency and Performance in Emerging Economies: Caveat Emptor

Transcription

1 Privatization, Transparency and Performance in Emerging Economies: Caveat Emptor The Case of Kazakhstan World Congress of Comparative Economics June 25-27, 2015 David M. Kemme University of Memphis Sabit Khakimzhanov Director of Research, Halyk Finance Data in tables are from Halyk Finance and authors calculations. Kemme acknowledges funding in part by a grant from the United States Department of State. The following opinions, findings, and conclusions stated herein are those of the author(s) and do not necessarily reflect the views or policies of IREX or the U.S. Department of State.

2 Goals of Privatization Raise revenue Promote economic efficiency Reduce government interference in the economy Promote wider share ownership Introduce competition Subject state owned enterprises to market discipline Develop capital markets

3 Realization of the efficiencies attributed to privatization are contingent upon transparency of corporate governance Rewarding those efficiencies requires well functioning capital markets that provide relevant information to investors Events in Kazakhstan, People s IPO, provide an ideal setting to analyze both difficulties of privatization and obstacles to realizing expected benefits

4 Goals of the paper Review: privatization processes, benefits of privatization, issues of corporate governance, measures of transparency, links to performance Provide transparency scores for a sample of firms in 2013 and comparisons to comparable scores in 2009 Test for relationship between transparency scores and returns and liquidity for those firms traded on KASE

5 Issues to be Resolved in Privatization Process Improved financial intermediation is primary source of efficiency gains in the privatization process Principal Agent problem arises between investors interested in long term returns and managers focused on short term operational goals. To solve this problem high quality information and accountability of managers is necessary, i.e. institutions of corporate governance must be transparent

6 Current Situation Large role of state in economy via standard government functions and Samruk-Kazyna and NOF (more than 6,000 entities with state participation and one million employees and KZT1.5 trillion, from the budget). Nazarbayev pushed People s IPOs in 2013 Privatization initial phase nearly two decades ago; retail, residential. Now People s IPO, but little progress recently Lack of SME development Open economy, attracting FDI mainly in resource development, but far from markets and high transportation costs Resource rich and tied to world commodities markets Retreating on openness (Eurasian Economic Union- more diversion than creation, WTO may help) and role of private sector (re-nationalization of Pension funds), slowing of P-IPOs

7 Transparency Index Our analysis based on Pastoukhova, et al. (2009), Standard & Poor s Governance Services, in order to make comparisons over time. Construct an index of governance transparency based on sample of 111 firms, 114 questions, aggregated into 6 areas of concern. Response to questions is binary (other info collected though). Index is simple sum of responses. Compare scores for today with those of 2009 and for Russian firms in 2008.

8 Status of Governance and Transparency Have measures of corporate transparency improved since 2009 study? Is there a difference between SOE/SK KASE listed enterprises and publicly owned (private) KASE listed enterprises? Are SOE/SK enterprises designated for privatization more or less transparent than others?

9 Table 1: SOE/SK Total Ownership structure Shareholder rights Financial information Operational information Board and management information Board and management remuneration Cell Content Max Possible All- SOE/SK n= 43 (2.54) (0.51) (0.55) (0.76) (0.65) (0.75) (0.15) Stocks and Bonds listed- SOE/SK n= 5 Stocks only listed-soe/sk n= (4.78) 70 (8.73) (1.22) (1.18) (0.63) (1.38) (1.32) (1.80) (1.50) (2.78) (1.59) (2.25) (0.25) (1) Bonds only listed-soe/sk n= 18 Neither Stocks nor Bonds listed-soe/sk n= 16 Samruk-Kazyna (3.39) (4.70) (0.65) (0.75) (0.56) (0.79) (0.81) (1.48) (0.99) (1.06) (1.19) (1.32) (0.23) (0.19) S&P 2009 Score NA 24.7 NA NA NA NA NA NA

10 Table 2: Public (Not SOE/SK) Cell Content Total Ownership structure Shareholder rights Financial information Operational information Board and management information Board and management remuneration Max Possible All-Public (Not SOE/SK) n= 68 (1.31) (0.38) (0.31) (0.31) (0.39) (0.47) (0.11) Stocks & Bonds listed- Public n= (1.92) (0.49) (0.37) (0.65) (0.56) (0.67) (0.056) 1.12 Stocks only listed- Public n= (2.00) (0.47) (0.41) (0.53) (0.76) (0.76) (0.258) 8.8 Bonds only listed- Public n= (2.70) (0.93) (0.63) (0.53) (0.69) (0.97) (0.12) 4.00 Neither Stocks nor Bonds listed-public n= 3 Public firms (5.78) (1.2) (1.86) (0.33) (0.33) (2.96) (0) S&P 2009 Score NA 43.8 NA NA NA NA NA NA

11 Table 3: Transparency & Corporate Governance Index Scores-2009 vs 2013 Cell Content Total Ownership structure Shareholder rights Financial information Operational information Board and Board and management management information remuneration Max Possible All avg n= 111 score (1.27) (0.32) (0.29) (0.35) (0.36) (0.42) (0.09) All- SOE/SK n= 43 All-Public (Not SOE/SK) n= 68 All firms Public firms Samruk-Kazyna 90 Russian companies, 2008 avg score avg score avg score avg score avg score avg score (2.54) (1.31) (0.51) (0.55) (0.76) * * (0.38) (0.31) (0.31) S&P 2009 Score (0.65) (0.75) (0.15) * * (0.39) (0.47) (0.11) * NA NA NA NA NA NA NA NA 8.00 NA 43.8 NA NA NA NA NA NA NA 24.7 NA NA NA NA NA NA 1.00 NA NA NA NA NA NA NA NA

12 Transparency and Performance Is there a relationship between transparency and performance? Average daily returns Liquidity, proxied by average bid-ask spread, (greater liquidity suggests lower transactions costs) Empirical issues: Banking crisis, non-trading days, sensitivity to sample

13 Simple model of relationship between returns and transparency controlling for proportion of non-trading days and default (mainly banks) for all firms listed Results are similar for transparency raw score or percentage score Results are mixed

14 Table 5: The effects of Transparency on Equity Returns and Liquidity (p-values are in parenthesis) Notes: n=26, average daily returns are for 2012, average bid-ask spreads and share of non-trading days are calculated for the period T-score is the percentage score for each firm. Results are very similar for using total raw score. Average returns C (0.0855) T-score (0.0618) Non-trading days (0.1601) Default (0.7035) daily Average bid-ask spread (0.5139) (0.5562) (0.2623) (0.9373) R 2 F (p-value)

15 Transparency is related to returns and significant at level of significance No relationship between transparency and bid-ask spread. The later suggests market is underdeveloped, lack of breadth and depth.

16 Conclusions Continuing high level of growth and development requires growth of private sector Increased efficiency of state owned enterprises requires subjecting them to market discipline and competition Increased efficiency of private sector requires and is contingent upon transparent corporate governance to attract investors People s IPO is well designed and targeted firms score relatively well on transparency measures. Transparency is related to returns but not market liquidity. This suggests underdeveloped capital market remains a problem