Ownership, Control and Corporate Performance after Large-Scale Privatization

We analyze the effects of ownership type and concentration on performance of a population of firms in a model large-scale privatization economy (Czech Republic). Using specifications based on first-differences and unique instrumental variables, we find that few types of private ownership improve dynamic post-privatization performance. Concentrated foreign (but not domestic) ownership improves some measures of performance relative to state ownership. Foreign investors engage in strategic restructuring by increasing the rate of change of sales, while domestic private owners reduce the rate of change of sales and labor cost without increasing profitability. The effects of concentrated foreign ownership support the agency theory and go against theories stressing the positive effects of managerial autonomy and initiative. Our results are also consistent with the thesis that large domestic stockholders are not improving performance because they loot the firms. We find some support for the hypothesis that firms restructure by first lowering and later increasing the rate of change of employment. The state as a holder of the golden share has a positive effect on employment, while stimulating profitable restructuring. The state hence appears as a more economically and socially helping agent than in some recent studies.

[1]  Jonathan R.W. Temple,et al.  The New Growth Evidence , 1999 .

[2]  Michael C. Jensen,et al.  A Theory of the Firm: Governance, Residual Claims, and Organizational Forms , 2001 .

[3]  E. Kočenda,et al.  State of corruption in transition: case of the Czech Republic , 2001 .

[4]  E. Kočenda,et al.  Firm ownership structures: dynamic development , 2002 .

[5]  Mike Burkart,et al.  Agency Conflicts in Public and Negotiated Transfers of Corporate Control , 2000 .

[6]  Jan Svejnar,et al.  Investment, Credit Rationing, and the Soft Budget Constraint: Evidence from Czech Panel Data , 2001, Review of Economics and Statistics.

[7]  R. MacDonald,et al.  The Monetary Approach to Exchange Rates in the CEECs: Implications for the Czech Republic , 2004 .

[8]  Jan Svejnar,et al.  Rapid and multifaceted privatization: Experience of the Czech and Slovak Republics , 1994 .

[9]  Jan Svejnar.  The Czech Republic and economic transition in Eastern Europe , 1995 .

[10]  S. Claessens.  Corporate Governance and Equity Prices: Evidence from the Czech and Slovak Republics , 1995 .

[11]  Francesca Cornelli,et al.  The capital structure of firms in Central and Eastern Europe , 1998 .

[12]  Jan Svejnar,et al.  Using vouchers to privatize an economy: the Czech and Slovak case , 1994 .

[13]  T. C. Edens,et al.  Economic Growth , 1957, The Journal of Economic History.

[14]  J. Konings,et al.  The Effect of Ownership and Competitive Pressure on Firm Performance in Transition Countries: Micro Evidence from Bulgaria, Romania and Poland , 2001 .

[15]  H. Demsetz,et al.  The Structure of Corporate Ownership: Causes and Consequences , 1985, Journal of Political Economy.

[16]  Vasiliev,et al.  Corporate Governance in Central Europe and Russia: Framework, Dynamics, and Case Studies from Practice , 2020, CSR, Sustainability, Ethics & Governance.

[17]  J. Sachs,et al.  The Gains from Privatization in Transition Economies: Is “Change of Ownership” Enough? , 2001, IMF Staff Papers.

[18]  Jozef Konings,et al.  Job Creation, Job Destruction and Growth of Newly Established, Privatized and State-Owned Enterprises in Transition Economies: Survey Evidence from Bulgaria, Hungary and Romania , 1998 .

[19]  J. Tirole,et al.  Formal and Real Authority in Organizations , 1997, Journal of Political Economy.

[20]  Thierry Tressel,et al.  Competition and Corporate Governance: Substitutes or Complements? Evidence from the Warsaw Stock Exchange , 2001 .

[21]  Thierry Tressel,et al.  Competition, Corporate Governance: Substitutes or Complements? Evidence from the Warsaw Stock Exchange , 2001 .

[22]  William L. Megginson,et al.  The Financial and Operating Performance of Privatized Firms during the 1990s , 1999 .

[23]  M. Raiser,et al.  Trust in Transition: Cross-Country and Firm Evidence , 2003 .

[24]  Mag Iskander.  Corporate governance : a framework for implementation , 2000 .

[25]  William L. Megginson,et al.  Forthcoming, Journal of Economic Literature FROM STATE TO MARKET: A SURVEY OF EMPIRICAL STUDIES ON PRIVATIZATION , 2000 .

[26]  James J. Heckman,et al.  Choosing Among Alternative Nonexperimental Methods for Estimating the Impact of Social Programs: the Case of Manpower Training , 1989 .

[27]  L. R. Christensen,et al.  The Relative Efficiency of Public and Private Firms in a Competitive Environment: The Case of Canadian Railroads , 1980, Journal of Political Economy.

[28]  Michael T. Rock,et al.  The Politics of Development Policy and Development Policy Reform in New Order Indonesia , 2003 .

[29]  Stijn Claessens,et al.  Ownership Concentration and Corporate Performance in the Czech Republic , 1999 .

[30]  Kathryn L. Dewenter,et al.  State-Owned and Privately Owned Firms: An Empirical Analysis of Profitability, Leverage, and Labor Intensity , 2001 .

[31]  Narjess Boubakri,et al.  The Financial and Operating Performance of Newly Privatized Firms: Evidence from Developing Countries , 1998 .

[32]  Ernst-Ludwig von Thadden,et al.  Blocks, liquidity and corporate control , 1998 .

[33]  Mary M. Shirley,et al.  Public versus private ownership : the current state of the debate , 2000 .

[34]  J. Hausman.  Specification tests in econometrics , 1978 .

[35]  Jan Svejnar,et al.  Priorities and Sequencing in Privatization: Theory and Evidence from the Czech Republic , 2001 .

[36]  Morris Bornstein.  Post-privatisation Enterprise Restructuring , 2001 .

[37]  Jan Svejnar,et al.  Returns to Human Capital Under The Communist Wage Grid and During the Transition to a Market Economy , 2000, Review of Economics and Statistics.

[38]  A. Shleifer,et al.  A Survey of Corporate Governance , 1996 .

[39]  W. Kruskal,et al.  Use of Ranks in One-Criterion Variance Analysis , 1952 .

[40]  Philippe Aghion,et al.  Restructuring outcomes and the evolution of ownership patterns in Central and Eastern Europe , 1997 .

[41]  W. Pyle.  Reputation Flows: Contractual Disputes and the Channels for Inter-Firm Communication , 2003 .

[42]  R. Frydman,et al.  Why Ownership Matters? Entrepreneurship and the Restructuring of Enterprises in Central Europe , 1998 .

[43]  Simeon Djankov,et al.  Enterprise Restructuring in Transition: A Quantitative Survey , 2002 .

[44]  Stephen C. Smith,et al.  Privatization Incidence, Ownership Forms, and Firm Performance: Evidence from Slovenia☆☆☆ , 1997 .

[45]  J. Heckman.  Sample selection bias as a specification error , 1979 .

[46]  Orley Ashenfelter,et al.  Using the Longitudinal Structure of Earnings to Estimate the Effect of Training Programs , 1984 .

[47]  Franklin Allen,et al.  A welfare comparison of intermediaries and financial markets in Germany and the US , 1995 .

[48]  A. Shleifer,et al.  Politicians and Firms , 1994 .

[49]  H. White.  Maximum Likelihood Estimation of Misspecified Models , 1982 .

[50]  Y. Kandogan.  How Much Restructuring did the Transition Countries Experience? Evidence from Quality of their Exports , 2004 .

[51]  Lubomír Lízal,et al.  The Paradox of Czech Crusaders: Will They Ever Learn the Corruption Lesson? (Corruption and Anticorruption in the Czech Republic) , 2001 .

[52]  E. Kočenda.  Residual State Property in the Czech Republic , 1999 .

[53]  Nicholas Barberis,et al.  How Does Privatization Work? Evidence from the Russian Shops , 1995, Journal of Political Economy.

[54]  S. Estrin,et al.  Determinants of Enterprise Performance during Transition , 1999 .

[55]  P. Seabright,et al.  Competition and Enterprise Performance in Transition Economies: Evidence from a Cross-Country Survey , 2001 .

[56]  Gérard Roland,et al.  Transition and Economics: Politics, Markets, and Firms , 2000 .

[57]  Irena Grosfeld,et al.  Firms' Heterogeneity in Transition: Evidence from a Polish Data Set , 1997 .

[58]  Olivier J. Blanchard,et al.  The Economics Of Post-Communist Transition , 1997 .

[59]  G. Roland,et al.  Defensive and Strategic Restructuring in Central European Enterprises , 1995 .

[60]  P. J. Huber.  The behavior of maximum likelihood estimates under nonstandard conditions , 1967 .

[61]  R. Filer,et al.  Data Watch: Research Data from Transition Economies , 2002 .

[62]  Lubomír Lízal,et al.  Corruption and Anticorruption in the Czech Republic , 2000 .

[63]  Josef Kotrba.  Chapter 8 – Privatization Process in the Czech Republic: Players and Winners1 , 1995 .

[64]  A. Hicken.  The Politics of Economic Reform in Thailand: Crisis and Compromise , 2004 .

[65]  S. Claessens,et al.  Privatization and Restructuring in Central and Eastern Europe: Evidence and Policy Options , 1997 .

[66]  Roman Frydman,et al.  When Does Privatization Work? The Impact of Private Ownership on Corporate Performance in the Transition Economies , 1999 .

[67]  Sensitivity of the Exporting Economy on the External Shocks: Evidence from Slovene Firms , 2003 .

[68]  Bruce Ross-Larson,et al.  Corporate governance : a framework for implementation - overview , 2000 .

[69]  Jean Tirole,et al.  Market Liquidity and Performance Monitoring , 1993, Journal of Political Economy.