Impact of privatization on Financial and Operating Performance of Privatized Firms: A case study of Tikur Abay Shoe Share Company

Abstract

Although privatization has turned in to world phenomena, it is only recently that Ethiopia has launched privatization programs. This paper compares the financial and operating performance of Tikur Abay Shoe Share Company before and after privatization and it investigates some of the major factors that affect its financial and operating performance. The objective of this paper is comparing the pre and post privatization financial and operating performance of the company so as to check whether there is improvement or decline following privatization. The data used in this study was obtained from the audited financial statement of the company. Ten financial performance indicators are calculated as average of three years before and three years after privatization .under profitability three ratios (return on sales, return on asset and return on equity),under operating efficiency (sales efficiency and net income efficiency) ,under capital investment(capital expenditure/ total asset and capital expenditure / total sales ), employment(total NO. of employees), under leverage(total debt/total asset) and finally under liquidity (current asset/current liability) were considered further more T-test statistics is employed to examine mean differences of each variables before and after privatization. Contrary to the expectation of the government; the study documented decline in profitability, net income efficiency, capital investment, liquidity and insignificant increment in sales efficiency, leverage and number of employment following privatization. This is because the company has technology and marketing related problems like: Poor product diversification, Weak product distribution system, poor promotion system, lack of experience and skill in designing competitive and fashionable shoe, lack of adequate skill and equipment to conduct quality control, , average age of employees is too high as a result there is high absenteeism, Poor work handling techniques, Poor supervision and Lack of modern technology and machines resulted poor productivity and limited scope of product diversification are some of the major factors that affect its financial and operating performance.