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SCIENCE ROAD JOURNAL

Corresponding Author: Amir Shams Kolookhi
Email: Shams1122@gmail.com
Acceptance Date: 7/29/2014
88
SCIENCE ROAD
Journal
Year: 2014 Volume: 02 Issue: 06 Pages: 88-94







Amir Shams Kolookhi
Young Researchers and Elite Club, Torbat-e-Jam Branch, Islamic Azad University, Torbat-e-
Jam, Iran
Aliakbar Nazari
Department of Accounting, Torbat-e-Jam Branch, Islamic Azad University, Torbat-e-Jam, Iran
Hossein Parsian
Young Researchers and Elite Club, Torbat-e-Jam Branch, Islamic Azad University, Torbat-e-
Jam, Iran













The Effects of Targeted subsidies Public Firms on Their Performance in Tehran
Stock Exchange

Abstract:


This study aims to examine the effects of Targeted subsidies public firms on their performance in Tehran Stock Exchange. The
hypotheses of this paper examine the significance of the relationship between Targeted subsidies, asset return, stockholders
equity, and stock return. To test research hypotheses, the method of comparing samples’ means and their analysis were used.
The statistical sample included 71 companies. The findings showed no significant correlation between asset return,
stockholders equity, stock return, and Targeted subsidies. Among the hypotheses of 3 periods, the hypothesis of one period
was confirmed.













Keywords: Targeted subsidies, asset return, stockholders equity, stock return

SCIENCE ROAD JOURNAL
Corresponding Author: Amir Shams Kolookhi
Email: Shams1122@gmail.com
Acceptance Date: 7/29/2014
89
1. Introduction
Targeted of subsidies is an ideal test for showing political commitment toward market-centered modifications. Such
tests are concerned with policy-makers’ drawback from managing and supervising economic activities. Investigating
the role of transform forms in increasing the efficiency and productivity of delivered units is an important issue in
the pathology of Targeted subsidies processes.
This transfer or delivery of control authorities from politicians to private owners is a main reason of improving
companies' performances under private ownership.
Although Targeted subsidies can help market-centered modifications and empowers political forces, the government
can’t fully prevent from political changes (1).Judgments on the results of Targeted subsidies need a background
understanding about its goals and a general definition of it. Targeted of subsidies has various definitions. It can have
a meaning other than full transfer of ownership from public to private section. In a broader term, Targeted subsidies
refers to a range of the policies which govern the capital of private section from outsourcing to full market
liberalization in developing an industry (2).Some of the given definitions are as follows:
Targeted subsidies is a tool for improving the performance of economic activities of the industries via increasing the
role of market force in case at least 50% of public stocks are delivered to private section (3). Schwartz asserts that
Targeted of subsidies refers to a new economic system based on the market and revolutions of different economic
aspects (4). Targeted of subsidies is a set of legal, economic, social operations, based on decreasing organizational
bureaucracy (5). It is a process in which the government examines the possibility of transferring the duties and
utilities to the private section and delivers them if the conditions are proper (6). Targeted subsidies can have
different goals such as ownership transfer and decreasing the direct government role in economic activities,
deregulations, subsidiary and price disorders balance, budget reduction, capital market development, competition
increases, and efficiency improvements, creating interest in the employees of the firms, and providing customers
benefits (4).The progresses in Targeted subsidies have not been fully fulfilled for the problems such as instability of
national economy, political ambiguities about Targeted subsidies, disagreements of strong stakeholders,
organizational complexities, managerial deficiencies in the market, heavy taxes, and public jealousy to private
entrepreneurs (7). According to Denial et al. (2009), the advantages of stock market’s liberalization are as follows:
- Sharing the risks between internal and external agencies, it reduces ownership capital cost
- Liberalization of capital account has positive effects on investments.
- International standard models of asset pricing predict that stock market liberalization can decrease ownership
capital costs
Increasing input capital trend can enhance the cash ability of stock market which decreases capital spending.
However, liberalization of capital market doesn’t decrease ownership capital costs. Although liberalization
decreases capital spending without any ambiguity, it can also lead to increasing without-risk return rate and capital
cost (8). Various studies have been done on Targeted subsidies. But, there is no definite result for Targeted subsidies
effects. The results of Targeted subsidies can be either positive or negative (9, 10, 11, 12). Studies on Targeted
subsidies are divided into 2 general groups; econometric studies which try to identify the results of Targeted
subsidies, its strength and weakness, using corporate data or a collection of international data, and the studies on the
processes, factors, regulations, demand and supply conditions, and etc.



SCIENCE ROAD JOURNAL
Corresponding Author: Amir Shams Kolookhi
Email: Shams1122@gmail.com
Acceptance Date: 7/29/2014
90
2. Hypotheses
H1. Targeted subsidies of public firm's increases return of assets (ROA) in the first and second 3 years after delivery
compared to 3 years before delivery.
H2. Targeted subsidies of public firm's increases return of equity (ROE) in the first and second 3 years after delivery
compared to 3 years before delivery.
H3. Targeted subsidies of public firm's increases return of stocks(R) in the first and second 3 years after delivery
compared to 3 years before delivery.

3. Methodology
The statistical population of the study included all the firms of Tehran Stock Exchange, delivered to the public
section from 2004-2006. Since the study examines the firms, 6 years after transfer, the time span of the study is
2006-2012.

3.1. Statistical methods
To test the hypotheses, the means of the samples were calculated and analyzed. It means that the gathered data of
selected indices in 2 groups before and after Targeted subsidies were compared.

3.1.1. H1 test
Testing H1, the null hypothesis asserts that there is no significant difference between the mean of ROA in the first
and second 3 years after delivery, compared to 3 years before delivery after Targeted subsidies.
H
0
: μ
1
= μ
2

But H1 suggests that there is a significant correlation between them.
H
1
: μ
1
≠ μ
2

AcceptingH
1
implies that if such difference is positive, Targeted of subsidies has positive effects on ROA. But, if
the difference is negative, Targeted of subsidies doesn’t have any positive effects.

3.1.2. H2 test
Testing H2, the null hypothesis asserts that there is no significant difference between the mean of ROE in the first
and second 3 years after delivery compared to 3 years before delivery after Targeted subsidies.
H
0
: μ
1
= μ
2

But H2 suggests that there is a significant correlation between them.
SCIENCE ROAD JOURNAL
Corresponding Author: Amir Shams Kolookhi
Email: Shams1122@gmail.com
Acceptance Date: 7/29/2014
91
H
1
: μ
1
≠ μ
2

AcceptingH
1
implies that if such difference is positive, Targeted of subsidies has positive effects on ROE. But, if the
difference is negative, Targeted of subsidies doesn’t have any positive effects.

3.1.3. H3 test
Testing H3, the null hypothesis asserts that there is no significant difference between the mean of R in the first and
second 3 years after delivery compared to 3 years before delivery after Targeted subsidies.
H
0
: μ
1
= μ
2

But H3 suggests that there is a significant correlation between them.
H
1
: μ
1
≠ μ
2

Accepting H
1
implies that if such difference is positive, Targeted of subsidies has positive effects on R. But, if the
difference is negative, Targeted of subsidies doesn’t have any positive effects.

4. Results
To examine the firms’ performance, 3 measures of assets return, equity return, and stock return were used. The
summary of H1 test results are shown in Table 1.

Table 1-Summary of H1 test results
H1

1st period after Targeted subsidies

2nd period after Targeted subsidies
Sig Result Sig Result
companies in 2002

.173 Rejected .070 Rejected
companies in 2003

.028 Confirmed .002 Confirmed
companies in 2004

.069 Rejected .038 Confirmed
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Corresponding Author: Amir Shams Kolookhi
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Acceptance Date: 7/29/2014
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The summary of H2 test results are shown in Table 2.
Table 2-Summary of H2 test results
H2
1st Period After Targeted subsidies

2nd Period After Targeted subsidies
Sig Result Sig Result
companies in 2002

.301 Rejected .118 Rejected
companies in 2003

.008 Confirmed .025 Confirmed
companies in 2004

.059 Rejected .523 Rejected
The summary of H3 test results are shown in Table 3.

Table 3-Summary of H3 test results
H3
1st period after Targeted subsidies

2nd period after Targeted subsidies
Sig Result Sig Result
companies in 2002

.240 Result .149 Rejected
companies in 2003

.014 Rejected .016 Confirmed
companies in 2004

.506 Confirmed .100 Rejected

Regarding the above tables, it is observed that Targeted subsidies rules have been considered more carefully in
2003, fulfilling the expected goals from it. But, such strict rules have rarely been exerted in 2002 and 2004.


SCIENCE ROAD JOURNAL
Corresponding Author: Amir Shams Kolookhi
Email: Shams1122@gmail.com
Acceptance Date: 7/29/2014
93
5. Conclusion
Nowadays, Targeted of subsidies is considered as a proper way of increasing efficiency in the economy of all
nations, especially developing countries. But, the guarantying point for reaching growth is its consideration of
strategic goals based on the conditions of each country. Recognizing strength and weakness of the economy and
providing necessary rules for reaching growth is the necessity of this issue. According to the institution a lists,
fundamental problems should be solved because the actions such as reducing government responsibilities,
deregulations, liberalization, and etc are necessary. They can necessarily lead to the improvement of economic
performance of the country. In the present world, the opportunities and success of the people, companies, nations,
and governments depend on the ways of their performance in the society. Accordingly, an autonomous order is
needed to enable market mechanisms to work. This study examines the effects of Targeted subsidies on the
performance of the companies. The results showed that despite the studies of many countries, Targeted subsidies
hasn’t led to the efficiency improvements in stock exchange, except in a limited time period in Iran. The findings of
this study agree with the results of previous domestic studies.

6. References
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Analysis", 183-191.
[2] Ure, J. (2003), "Telecommunications Privatization: Evidence and Some Lessons", Telecommunications
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[3] Beesly, M .,Littlechild, S (1994), "Privatization, Principles, Problems and Priorities in: Privatization and
Economic Performance", Oxford University Press, 15-30.
[4] Motavasseli, M(1994), "Privatization or Desired Combination of Market", Institute of Commercial Researches
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[5] Shams, A (1992), "Is the Privatization of State Owned Institutes a Necessity or Compulsion?" Quarterly Journal
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[6] Saghir, J (1993), "Private Sector Development and Privatization", The Report Presented for the Seminar of
Privatization Survey, Economical Affairs Faculty, and Economic Development Institute, May 8-13 (In Persian).
[7] Akbariyeh, H.,Dordaneh, D (2003), "Privatization Management", Ariana Industrial Research Center, Dorsa
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[8] Cajueiro Daniel, O.,PerikilisGand Benjamin, M. T(2009) "Does Financial Market Liberalization Increase the
Degree of Market Efficiency? The Case of the Athens Stock Exchange", International Review of Financial
Analysis.
[9] Havrylyshyn, O., McGettigan, D. (1999), "Privatization in Transition Countries: A Sampling of the Literature",
IMF Working Paper. No. WP/99/6.
[10] Shirley M., and P. Walsh (2000), "Public Private Ownership: The Current State of the Debate", World Bank
Working Paper, No. 2420.
SCIENCE ROAD JOURNAL
Corresponding Author: Amir Shams Kolookhi
Email: Shams1122@gmail.com
Acceptance Date: 7/29/2014
94
[11] Narimani, M (2001), "Outcomes and Obstacles of Privatization in Iranian Power Repair Companies",
Unpublished M.A. Dissertation, Islamic Azad University of Tabriz, Tabriz (In Persian).
[12] Almasi, M.R (2002), "The Impact of Privatization on the Financial Performance of Companies Accepted in
Tehran Stock Exchange", Unpublished M.A. Dissertation, University of Shiraz, Shiraz(in Persian)