Effects of government patronage on value creation:(Evaluation of privatization function)

A major economic issue in Iran that has intensified in the past few years has related to privatization and its implementation in the economy. This interpretation of privatization has been mentioned in Article 44 of the Constitution in Iran. According to this new criteria for evaluating businesses, are public companies better than private ones? In the other words, In the Iranian economy, can privately owned entities better achieve value creation than publicly owned companies? This paper investigates the relationships between types of company ownership (in terms of government patronage) and uses new financial criteria of performance assessment in addition to criteria assessing value creation in companies listed on the Tehran Stock Exchange. The study covers a 9-year period, and it examines the relationship between ownership type and performance of firms employing new criteria of value creation. Hypotheses are presented and examined by means of correlation, simple linear regression, and comparisons of two tests. The results indicate that there is a significant relationship between the percentage of government ownership of company stock and value creation: private companies, whose proportion of government ownership is less than 50 percent, have greater value creation. In addition, a meaningful relationship exists between the use of new metrics to measure performance based on value (i.e., economic value added and cash value added) and traditional measures (i.e., return on assets and return on equity). In conclusion, privately owned companies are better value creators than publicly held companies.