Effects of Privatization and Ownership in Transition Economies

By Saul Estrin, Jan Hanousek, Evézen Kocenda, Jan Svejnar. 2009

725 citations recorded by the source corpus.

The paper evaluates the effects of privatization in the post-communist economies and China. In post-communist economies privatization to foreign owners results in a rapid improvement in performance of firms, while performance effects of privatization to domestic owners are less impressive and vary across regions, coinciding with differences in policies and institutional development. In China relatively more estimates suggest that privatization to domestic owners improves the level of performance. Concentrated private ownership has a stronger positive effect on performance than dispersed ownership in the post-communist economies, but foreign joint ventures rather than wholly owned foreign firms have a positive effect in China. Worker or collective ownership does not have a negative effect. In the post-communist economies new firms are equally or more efficient than firms privatized to domestic owners, and foreign start-ups are more efficient than domestic ones. Privatization is not associated with lower employment. When accompanied by complementary reforms, privatization has a positive effect on economic growth. Three factors appear to drive the more positive effect of privatization to foreign than domestic owners. Domestic managers have more limited skills and access to world markets, domestically privatized firms have been more subject to tunneling and in some countries new large shareholders artificially decreased performance. The important policy implication is that privatization per se does not guarantee improved performance, at least not in the short- to medium-run. Type of private ownership, corporate governance, access to know-how and markets, and the legal and institutional system matter for firm performance.

Subfields: Accounting, Economics and Econometrics

View Paper: https://www.semanticscholar.org/paper/b1956a13935880c6ef8fa60451d1b8f8ab99fbbb

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Citations in the corpus

Financial Constraints and Innovation: Why Poor Countries Don't Catch Up (2013, background): “21This finding is consistent with Estrin et al. (2009) documenting that the productivity gap between domestically and foreign owned firms does not shrink considerably after controlling for selection into foreign ownership.”
Do state and foreign ownership affect investment efficiency? Evidence from privatizations (2017, neutral): “For example, Jensen (1986) argues that empire-building motives lead managers with free cash flow to overinvest.”
Mergers and acquisitions in and out of emerging economies (2015, background): “Estrin and Meyer (2011) find that (based on the survey conducted in six EE) bigger relative size of the subsidiary, stronger institutions, and lower perceived quality of local firms facilitate brownfield acquisitions.”
State capitalism(s) redux? Theories, tensions, controversies (2020, background): “…‘the liabilities of “stateness”’, which broadly refers to how ‘dysfunctional political interference’ negatively affects firm-level economic performance (for surveys on the performance and efficiency costs of state ownership, see Estrin et al., 2009; Megginson, 2017; Megginson and Netter, 2001).”
Business Environment, Exports, Ownership, and Firm Performance (2011, background): “…al. (2005); and the effect of ownership is found to be generally positive for foreign ownership but less clear-cut for domestic private ownership (Estrin et al., 2009).5 Interestingly, while this work often uses the same or similar dependent variables; each of them focuses on a particular set of…”
The Sovereign Wealth Fund Discount: Evidence from Public Equity Investments (2015, neutral): “On the other hand, existing theory and empirical evidence suggests that politicians are “bad owners” of corporations as they typically impose political objectives that negatively affect shareholders’value (Shleifer and Vishny 1994; Megginson and Netter 2001; Estrin et al. 2009).”
State and Development: The Need for a Reappraisal of the Current Literature† (2016, background): “JEL published an overview on the effects of privatization in transition economies by Estrin et al (2009). opportunistic renegotiation of terms or bad loans in public sector banks which the tax payers have to re-capitalize.”
Home country institutions and the internationalization of state owned enterprises: A cross-country analysis (2016, background): “…importance of both home and host country institutions for international strategies, most empirical work has focused on host country characteristics (e.g., Delios & Henisz, 2003; Meyer et al., 2014) or the distance between home and host countries (e.g., Estrin et al., 2009a, Tihanyi et al., 2005).”
Market Facilitation by Local Government and Firm Efficiency: Evidence from China (2013, background): “However, the significant negative coefficient for pure foreign ownership in the information facilitation regressions casts doubt on the notion that themost efficient firms are more likely to receive government assistance given the well-documented superior performance of those enterprises (Estrin et ”
Hayek, Local Information, and Commanding Heights: Decentralizing State-Owned Enterprises in China (2017, neutral): “This literature largely focuses on privatization (World Bank 1995; Yergin and Stanislaw 1998; Megginson and Netter 2001; Djankov and Murrell 2002; Bai, Lu, and Tao 2009; Estrin et al. 2009), but SOE decentralization has been widespread and important.”