Privatization and its effects on financial markets

Abuse and lack of resource are two challenges of state-owned enterprises in under developing countries. These countries not only confront with various types of constraints but also public economic prohibits them from optimal use of resource.Privatization is one of the best solutions to address these challenges. Governments choose privatization policy in order to improve state-owned enterprise efficiency and hope, their capital markets are developed in this way and a suitable ground is provided for their economic prosperity by efficient allocation of resource.In Iran, with approved and prescribe general policies of principle 44 of the constitution an important step has been taken by government toward economy policy changes. This paper reviews privatization concept and various methods of disposal of state-owned enterprises. It also describes pros and cons view over privatization and its effect on agency problem, corporate governance mechanism and accounting information quality. Finally, the role of capital markets in privatization is emphasized and privatization process and its challenges in Iran is analyzed.