The purpose of this paper is to develop a methodology to study profit vs non‐profit seeking firms usefully to compare corporate performance. It aims to apply the methodology to measure if state vs non‐state firms with different objectives are comparable in performance. If relevant, the paper also aims to comment on the applicability of this method to analysis of other firms, e.g. Islamic banks in Indonesia.
The paper applies Malmquist data envelopment analysis method to different classes of firms: state vs non‐state firms; aggregated at the industry and at national levels; and develop appropriate time trend analysis as well. Findings – The common belief that all state firms are inefficient is not upheld by test results: in some sectors (agriculture and chemicals) state firms are more efficient than private firms. Efficiency is very low, but did improve over time across all sectors and types of firms particularly before the 1997‐1998 and in recent years. Efficiency is mostly achieved through technology adoption (technological change) accounts for most efficiency gains.
This study overturns findings of many accounting performance based studies and revisits policy implications.
No one policy fits all in Indonesia for privatization programme.
The paper provides more valid methodology to compare state firms with non‐state firms for the first time.
