Privatization and organizational changes: Evidence from Spain

Although privatization has been widely analyzed, most studies have adopted a macroeconomic or political perspective, while little attention has been paid to its organizational and managerial implications. In this research, we develop two-case studies to analyze how corporate governance and strategy of privatized firms are related to the use of management compensation systems. Our results suggest that variables traditionally associated with greater board independence in carrying out monitoring (e.g., leadership structure and outsider/insider ratio) do not always result in variation after privatization. We find that firm’s ownership change does not necessary imply differences in the way the firm is managed after privatization. The adoption of firm’s strategic orientation based on the analysis of both the market and industry conditions in privatized firms, and the design of compensation systems aligned with this firm’s strategy seems to be related to the fact that deregulation and competitiveness occur at the same time as privatization. Thus, we contribute to the current literature by providing a comprehensive framework to analyze management changes of privatized firms, and highlighting the key role that other contingent variables, not considered by agency theory, play on explaining this issue.