A comparative analysis of financial performance of public and private sector firms in Indian capital goods industry

It is a general perception that public sector firms are less efficient relative to the private sector firms. The perception is based on the idea that the private ownership establishes the market for corporate control by allowing the tradability of property rights and therefore improves the quality of management. The paper tries to verify this perception using the most recent data from the Indian capital goods industry. In order to analyze the financial performance of public and private sector firms, we have used two distinct techniques viz., ratio analysis and panel data models. The ratio analysis reveals that public sector companies have better short term and long term financial health as measured by liquidity and solvency ratios and they have lower efficiency in resource use as compared to that of private sector firms. As far as profitability is concerned, public sector firms are as good as their private counterparts are. Whereas, the panel model suggests that public sector firm have higher profitability than their private counterparts.