Privatization: What Have We Learned? 1

Sergei Guriev2 and William Megginson3

Abstract

Privatization is one of the major economic phenomena in recent economic history. This paper

summarizes empirical research on the effect of privatization on the performance of privatized

firms and on the society. The extant evidence from privatizations in many developed and

developing shows that privatization usually results in an increased productivity and positive

effects on the society. The effect of privatization depends however on economic institutions in

place, in particular on rule-of-law, competition, hard budget constraints, quality of governance

and regulation. We pay a special attention to the cases of Russia and China and show that their

experience is consistent with the conventional wisdom once one accounts for an appropriate

counterfactual.

1 This paper is prepared for ABCDE conference in St Petersberg, January 2005. The paper draws heavily on

Megginson 2005 and Guriev and Rachinsky 2005.

2 Human Capital Foundation Professor of Corporate Finance, New Economic School and CEFIR, Moscow, and

CEPR. E-mail: sguriev@nes.ru.

3 Professor and Rainbolt Chair in Finance, University of Oklahoma. E-mail: wmegginson@ou.edu.

Why Is Privatization Research Important?

Since 1979, many countries have embarked on the course of privatization which has changed the

economic landscape around the world. Privatization has spread to many industries, including

those that had never been privately owned. Privatization has transformed command economies in

post-communist countries into decentralized ones. It has changed the political balance of power

in many societies and revolutionized global financial markets. Yet, the intellectual debate on the

benefits of privatization is far from over. The available research shows that the impact of

privatization on the privatized firms and on the economy and society depends on many variables

including political and economic institutions. There are significant complementarities between

privatization and other reforms. It also matters how privatization is structured and who the new

owners are. In particular, there are substantial benefits to opening up to foreign ownership.

We summarize the extant research on privatization in this article, and also discuss two important

cases that are often referred to as evidence against privatization: Russia and China. In Russia

(and some other CIS countries), privatization seems to have produced few benefits for the

privatized firms or for society, whereas China has managed to pursue a reform package that has

not so far included the mass privatization of state-owned enterprises and yet has produced very

impressive results. We argue that in both cases–as well as in other controversial privatization

examples such as Latin America–the outcomes can be explained within the conventional

framework once one accounts for an appropriate counterfactual.

A comprehensive survey of the existing research on privatization would take over fifty pages (as

it actually does in Megginson and Netter 2001; Djankov and Murrel 2002; and Megginson 2005)

so we only summarize the general lessons and discuss the representative studies.

Privatization Around the World

While it is now hard to imagine the world without privatization, it is still a very recent

phenomenon by historical standards. While there were important privatization programs in West

Germany in the early 1960s, and in Chile during the 1970s, state ownership of business

enterprise was pervasive, and growing, in the world economy until a quarter-century ago. In

OECD countries, this was a result of (1) the Great Depression, which inspired a profound

critique of private ownership, (2) the two World Wars, during which governments established (or

reestablished) public ownership over “strategic” industries, and (3) widespread acceptance of

social democrat philosophies stressing the strategic need for state control of an economy’s

“commanding heights.” In the socialist countries, public ownership of the means of production

was the essential piece of ideology; private ownership was limited to personal consumption

goods and – in some countries – to small agricultural land plots. Not surprisingly, given the

perceived success of Soviet industrialization and the important role of public ownership in the

developed West, many developing countries also adopted state-directed development policies

during the post-WWII era.

By the late 1970s, however, there was growing disappointment with the dismal performance of

the state-owned companies, as well as the growth slowdown in the socialist countries, prompted

the first privatization attempts by Britain’s conservative Thatcher government. Since then,

privatization has spread to more than 100 countries that collectively have privatized tens of

thousands of firms, and have raised almost $1.5 trillion. Privatization has produced substantial

fiscal benefits: in many countries, privatization revenues accounted for 10 percent or more of

government budgets in some years, and saved almost as much via eliminating the need for

further subsidies to the state owned enterprises.

Certainly, the most dramatic privatization experiences have occurred in transition countries

where socialist economies have been become predominantly privately owned within a decade.

Yet, other countries have also pursued impressive privatization programs; moreover, as much of

post-communist privatization was non-cash-based, OECD countries and other developing

countries easily surpassed transition economies in terms of privatization revenues.

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Figure 1: Developing countries’ revenues from privatization. Source: World Bank Privatization

Database.

Since 1984, the share of state-owned enterprises (SOE) in the GDP of industrialized countries

has fallen by almost half, to less than 5 percent. The change was even more substantial in the

developing countries: according to Sheshinski and Lopez-Calva 1999, between 1980 and 1997,

SOEs’ activities as a percentage of GDP decreased from 11 to 5 percent in middle income

countries, and from 15 to 3 percent in low income economies. The change in employment was

even larger. In the middle-income countries, SOE employment has come down from a peak of 13

to about 2 percent of total employment, while in low income countries employment in state

enterprises has dropped from over 20 to about 9 percent (Sheshinski and Lopez-Calva 1999).

Figure 2: The share of SOE in GDP by region. Source: Lopez-de-Silanes 2005, Figure 1.

The Theoretical Debate on Privatization

The policy debate on privatization is often reduced to the following simple arguments.

Privatization helps to raise revenues for the government. Private ownership strengthens the

incentives for profit maximization and therefore should lead to increased productive and

allocative efficiency. Yet private ownership may involve substantial costs: there can be market

failures related to externalities, market power, and public goods. These market failures provide a

rationale for public ownership.

While the policy debate is usually focused on the trade-offs above, economists argue that the

picture is actually much more nuanced. Privatization, particularly in post-socialist countries,

tends to impact almost all macroeconomic and many microeconomic forces, sometimes in

conflicting ways.

Fiscal considerations. The argument that privatization helps to raise cash for the government is

related to the privatization’s impact on productivity. If the public ownership is optimal, then

government is better off keeping the firms in public ownership and receiving the stream of

profits. If the government is cash-strapped it should issue debt (or raise taxes). The privatization

proceeds are high only when the new private owners are more efficient (or at least expect to be

more efficient). Therefore the fiscal benefits of privatization are certainly related to the

efficiency and welfare advantages of private ownership. Yet, the fiscal issues are very important

as they provide government with incentives to undertake the privatization–to raise cash and to

eliminate public subsidies to SOE.

Privatization and market failures. Market failures, even when they exist, do not have to be

corrected through public ownership. Much can be achieved through regulation, taxation, and

private provision of public goods (through profit-maximizing firms or non-profit organizations).

There are certainly limits to this argument. Similarly to the multitasking framework of

Holmstrom and Milgrom 1991, Shleifer 1998 argues that privatization may result in an excessive

emphasis on profit maximization at the expense of other socially valuable objectives. If the latter

are not contractible, then the multitasking theory suggests that it may be optimal to weaken the

profit maximization incentives. For example, private prisons may be very good at cutting costs

but do not necessarily internalize the well-being of the convicts (Hart et al. 1997). Therefore

state ownership of prisons may be socially optimal even though they would not undertake cost-

reducing measures.

This argument applies to all societal effects of privatization–externalities, distributional

concerns, market power–whenever government’s regulatory capacity is limited. If, for some

reason, government cannot ensure effective regulation of the privatized firms to limit the

negative externalities, privatization may indeed have negative implications for social welfare.

The regulatory failure may arise from either lack of competence or incentives within government

bureaucracy or because of regulatory capture by the regulated firms. As shown in Guriev and

Rachinsky 2005, privatization can create powerful interest groups that have a serious effect on

economic policy choices. In particular, if privatization creates large private monopolies in an

economy with poor institutions, it is very likely that competition policy will never develop.

Faccio 2006 shows that political connections are especially important in countries with less

mature institutions.

On the other hand, public ownership may not resolve all the relevant issues: both in democratic

and in non-democratic regimes politicians are often concerned with issues other than economic

efficiency and social welfare; they may be either driven by political motives or simply corrupt.

Privatization reduces their ability to pursue political objectives.

Market socialism. The opponents of privatization argue that neoclassical economics’ welfare

theorems should also work in an economy with public ownership. Instead of a Soviet-type

economy with public ownership and planning, one can imagine a market socialism (Barone

1908; Lange 1936) system where firms are publicly owned, but exchange occurs in competitive

markets, and SOE managers are incentivized via performance contracts. Some adherents of

market socialism argue this is exactly what has been successfully implemented in China.

Critics of this idea argue that it is very hard for the government to commit not to intervene in

markets. Under market socialism, the government is omnipotent and can directly control all the

prices. Therefore, it is hard to protect market competition from the government monopoly, which

would not only expropriate the consumer surplus but would also undermine efficiency. It is also

hard for the government to commit to the strict antitrust policy that weakens the market power of

state-owned firms. Even in an open economy which “imports” product market competition, the

government still wields a monopoly in the labor market and in markets for nontradeables. The

government is also unable to commit to abstain from political pursuits while designing and

enforcing management contracts.

Another problem of government ownership is the inability to ensure the exit of failing firms.

Governments (or government banks) often bail out firms, private or public, in order to preserve

employment. This problem is especially severe in the case of the public firms. It is essentially

impossible for the state to commit to not bailing out its own firms. The resulting soft budget

constraints further aggravate the incentives problem for state-owned enterprises.

Yet another argument in favor of private ownership is the importance of innovation. Shleifer

1998 argues that innovation can only prosper under private ownership. While inventors can come

up with great ideas independently of the predominant ownership forms, further development and

commercialization of innovative ideas is certainly more likely under private ownership.

Policy Challenges: Speed, Sequencing and Methods

Complementarities and Sequencing

The debate above implies that the success of privatization depends on the quality of economic

and political institutions. Therefore reforms assuring property rights protection, competition and

openness, hard budget constraints, good corporate governance, low corruption, and optimal

regulation are all complementary to privatization.

The fundamental problem of privatization is that the need for privatization is stronger in

countries with less competent and accountable governments, yet these are exactly the countries

that lack mature economic and political institutions. Hence, the government that cannot run the

publicly owned firms well is often the government that is not able to design and implement

privatization well and to carry out the complementary reforms.

Privatizers in such countries face a chicken-and-egg problem. On one hand, they should first

build market institutions that would reinforce the benefits of privatization. On the other hand, it

is not clear why the reforms introducing such institutions would find any support until there is a

critical mass of private ownership. This problem is virtually absent in OECD countries where (a)

such institutions are already in place; (b) the majority of voters respect private property. The

situation is very different in developing and especially transition countries where prior to mass

privatization, the demand for market institutions is simply absent.

It is certainly not clear which approach is better suited for solving the chicken and egg problem.

Some countries have tried the “Machiavellian privatization” (Biais and Perotti 2002) approach

by selling cheap and fast in order to create a demand for institutions. Others delayed privatization

until the institutions were in place. In Central and Eastern Europe, both approaches were tried

and ultimately both succeeded – probably because of the external anchor of possible EU

accession. In the former Soviet Union, both approaches were attempted but neither seems to have

succeeded. In some countries, both privatization and institutional changes have been delayed

indefinitely; in others, privatization has happened but institutional change is still slow. In some

countries, particularly Russia, privatization was deemed illegitimate by the vast majority of

population because of the perceived corruption of the sale process. This eventually resulted in a

policy reversal, including major renationalizations.

Speed

An important policy choice is the speed of privatization. On one hand, in order to maximize

privatization revenues and find the most efficient owners, privatization should be administered

case by case rather than en masse. However, as Boycko, Shleifer, and Vishny 1995 argue,

privatization often has to be undertaken by a divided government. In this case, the window of

opportunity is very narrow and the case-by-case privatization is too slow while rapid, mass

privatization may assure the transformation’s irreversibility. The problem with mass

privatization is that if the government fails to design the mass privatization process well, this

may undermine the public support for further reforms and the legitimacy of the emerging private

property rights regime.

Another sequencing/speed issue is whether to restructure and improve performance before

privatization—not least in order to maximize privatization revenues. Boycko, Shleifer, and

Vishny 1995 argue that if the firm can be made profitable under public ownership, it should

probably not be privatized in the first place. And vice versa, if the firm is slated for privatization

as the government bureaucracy is not capable of running it, why trust the bureaucracy with

restructuring the firm?

Methods of Privatization: Share Issues, Trade Sales, or Non-Cash Privatization

Government can privatize firms through three major approaches: share issue privatization (SIP),

asset sales to a single buyer (trade sales), and non-cash (or “voucher”) privatization. The choice

between SIP and the trade sales is usually driven by size. Smaller firms are sold via private

markets (usually auctions) to a single buyer. This resolves the issue of separation of ownership

and control which is especially severe in countries with poor corporate governance. Larger firms

are harder to sell in their entirety, since the lack of financial intermediation precludes buyers

from raising sufficient funds to pay a high price for the asset (Maskin 2000). Such firms are

usually privatized via public capital markets.

In both SIPs and asset sales, an important decision is whether to allow foreigners to bid. For an

economist, increasing competition among bidders (either via SIP or in trade sales) should raise

privatization revenues and eventually attract a more efficient owner. However, foreign

participation is often ruled out due to political/nationalistic sentiment. In many cases, the

sentiment is promoted by the incumbent bidders, who benefit from the ban on foreign ownership

at the expense of the domestic public. Indeed, the exclusion of the foreign bidders raises

substantial problems, especially in the case of mass privatization. When a post-socialist

government is about to privatize a large part of the economy, there is insufficient wealth within

the country to assure a high price for the assets. Therefore one has to resort either to dispersed

ownership, even for small firms, or to non-cash privatization. The latter may result in inefficient

insider ownership and/or low privatization revenues, leading to disappointment with reforms.

Lessons from Privatization

The discussion above implies that privatization’s success depends on many variables, and there

is a large scope for empirical research to measure their relative importance. In this section we

summarize the results of such empirical studies.

Methodological Issues

Most studies focus on comparing the performance of firms under private and public ownership.

Some run cross-section regressions on the large samples of both private and public firms

estimating the effect of ownership controlling for other determinants of performance (see the

seminal paper by Boardman and Vining 1989). This approach is problematic as (a) ownership is

endogenous (Himmelberg, Hubbard, and Palia 1999) and (b) in a cross-section, it is very hard to

control for all possible determinants of performance at the firm level.

The other influential approach focuses on privatization per se rather than on ownership and

compares pre- and post-privatization performance of privatized firms. This approach–suggested

and first used by Megginson, Nash and van Randenborgh 1994, hereinafter referred to as MNR–

allows for comparing privatized firms in different industries, countries and even time periods.

The MNR methodology has become a tool of choice for privatization researchers as it only

requires data on the privatized firms for three years before and three years after the event of

privatization; such data are usually readily available.

Yet, MNR’s major advantage of looking only at the privatized firms is also a weakness. Indeed,

one should compare the change in performance of the privatized firms to that of the other firms,

public or private, that did not undergo privatization during this period. This approach is more

demanding as it requires a panel dataset that would track a large set of firms over a reasonably

long period of time (as described in Brown, Earle, and Telegdy 2006).

There are additional methodological problems with all the approaches. First, there are many

questions related to the appropriate measure of performance—such as whether it is best proxied

by stock market or accounting data. Second, there are endogeneity issues. To ensure their own

viability and to prevent the policy reversals, governments may begin by privatizing the firms that

are likely to benefit from privatization the most. This causes a selection bias. Another source of

selection bias is related to the quality of data, which is usually higher in countries with more

effective government and market institutions. As the latter are more conducive to the success of

privatization, it is likely that there are more studies of privatization successes than failures.

Third, studies of the firm-level impacts of privatization by definition miss the external effects of

privatization on the economy and society at large. In particular if the privatized firm is an

unregulated monopoly, the firm-level study is likely to find a productivity increase: the resulting

price increase will be recorded as a TFP growth even though the social returns may actually be

negative. There are a number of ways to go beyond the firm level. One can study the well-being

of the privatized firm’s customers. This is doable when the privatized firm is a utility company

serving a specific region or when there is a comprehensive privatization within an industry.

Alternatively, if a country goes through a mass privatization program, one can compare the

economic and social outcomes at the country level.

Summary of Research

Firm-level effects of privatization.

The extant firm-level empirical research on the change in productivity and employment around

the world is summarized in the Tables 1-4 (compiled from Megginson 2005, chapters 3 and 4,

and Chong and Lopes-de-Silanes 2005); see also tables 2.1-2.4 in Megginson 2005. The results

of these studies show that privatization usually results in increased productivity but also leads to

a reduction or no change in employment. There is also a strong evidence that privatization to

foreign investors results in higher productivity gains. Privatization brings higher benefits to the

firms wherever the appropriate institutions are in place. One should emphasize that tens of

studies on developed, developing and transition countries using very diverse methodologies seem

to yield very similar results.

Consistent with the critique of market socialism above, the evidence show that performance

contracts, corporatization, and hard budget constraints do not work without privatization (Table

5, Shirley and Xu, 1998, Shirley, 1999).

Country-level effects and complementary reforms.

Zinnes, Eilat, and Sachs 2001 study the transition experiences of 25 countries and show that

privatization is complementary to the institutional reforms that introduce rule-of-law, hard

budget constraints, and investor protection (see the Table 2.4 in Megginsion 2005). If these

institutions are not developed, privatization’s impact on the economic performance is actually

negative.

Restructuring prior to privatization. Does it pay to restructure the firm before privatizing? The

evidence suggests a negative answer, in line with the basic logic of privatization: privatization

makes sense precisely because governments are not good at restructuring firms. As shown by

Lopes-de-Silanes 1997 and Chong and Lopes-de-Silanes 2002, who study the effect of pre-

privatization restructuring on the net privatization price received, debt absorption has no effect

on the net price, while “investment” and “efficiency” programs actually reduce the price. Chong

and Lopes-de-Silanes also show that even labor force retrenchment programs are counter-

productive, as they all too often lead to adverse selection in the employees being let go.

Methods of sales. Megginson, Nash, Netter, and Poulsen 2004 study the determinants of the

choice between asset sales and share issue privatization. They show that the choice depends on

both the market institutions and the firm-specific factors. Larger and more profitable firms are

more likely to be sold via public capital markets. Better protection of property rights leads to a

higher chance of asset sales privatization.

The existing research on share issue privatization (summarized in Megginson 2005, chapter 6)

shows that these issues are substantially underpriced. Investors who buy the privatization share

issues earn statistically and economically significant excess returns (about 30%!) both in short-

and long-term. This is especially striking given that the corporate finance literature documents

negative long-term excess returns for private-sector share offerings. The underpricing probably

reflects the fact that privatizing governments pursue multiple goals rather than just revenue

maximization (see Boycko, Shleifer, and Vishny 1995 and Biais and Perotti 2002).

Welfare effects. Studies of the effects of privatization on social welfare and inequality have been

traditionally focused on utilities divestments. These studies measure the effect of privatization on

the access to services and generally find substantial benefits, especially for lower income groups

(see MacKenzie and Mookherjee 2003 for four countries in Latin America; Fischer, Serra, and

Gutierrez 2004 for Chile; Jones, Jammal and Gokgur 1998 for Cote d’Ivoire; Appiah-Kubi 2001

for Guinea). Galiani, Gertler, and Schargrodsky 2001 show that water privatization in Argentina

has resulted not only in substantial productivity growth but also in reduction in child mortality

(saving about 500 infant and young children lives per year). Similar results are obtained in the

studies of telecom privatizations (see Tables 4.12 and 4.13 in Megginson 2005 for a summary of

the results).

Stock market development. Another important impact of privatization is the development of

financial markets. Privatizations have contributed not only to the rise of the global capital

markets but, more importantly, have increased capitalization and liquidity of almost all non-U.S.

national stock markets. Boutchkova and Megginson 2000 calculate the turnover ratios (total

value of trading over the market capitalization) for individual financial markets and regress these

on the number of privatization deals in a given country in a particular year. Controlling for

country’s fixed effects and first-order autocorrelation, they find that each privatization raises the

stock market liquidity (proxied by the turnover ratio) by 2.3 percent in the next year and by

further 1.7 percent the year after that. The relationship between privatization and stock market

development seems to be well understood by the governments: Megginson, Nash, Netter, and

Poulsen 2004 show that governments are more likely to privatize through share issues in the

countries with less developed capital markets, apparently in order to foster stock market

development.

When Does Privatization NOT Work?

The most thorough panel study of mass privatization (Brown, Earle, and Telegdy 2006) shows

that privatization substantially improves productivity in Romania and Hungary (by about 20-

30%) but has no positive effect in Ukraine and even a negative effect in Russia. If the general

lesson from privatization research is that privatization usually “works”, how should one explain

the failure of privatization in Russia and other CIS countries? The evidence suggests that

privatization succeeds, but only if the relevant institutional environment is in place: private

property rights protection, rule-of-law, hard budget constraints, competition and regulation (see

Table 5 as well as Tables 1-4). In this respect, Russia and other CIS countries did not have the

benefit of prospective EU accession to force the pace of necessary reforms. Also, EU accession

made privatization irreversible in Central and Eastern Europe, while in the CIS policy reversal

was indeed an important risk (which did in fact materialize in Belarus and Russia, and almost

materialized in Ukraine), hence a fast mass privatization was needed. The other major problem in

the CIS arose from the decision to rule out foreign participation in privatization for ideological

reasons. Given all the constraints, Russian and other CIS privatizers had to adopt non-cash

privatizations.

Research shows that non-cash privatization is inferior to trade sales and share issue privatization.

The intuition is straightforward. First, non-cash privatization results in insider ownership, which

implies that demand for institutional reforms develops very slowly. Since market institutions are

not in place, secondary market trading results in ownership concentration in the hands of a few

politically connected owners (in Faccio’s dataset, Russia comes firms in terms of political

connections). The larger the insider’s ownership stake the more he or she is protected from

expropriation and regulation, and the more market power the company has. Therefore it is not

surprising in Russia, Ukraine and other CIS countries the post-privatization redistribution results

in economic domination by a few large business groups (Guriev and Rachinsky 2005). The role

of these so called “oligarchs” is not clear. On one hand, they improve performance of their own

firms and provide the only counterweight to a predatory government. They also represent the

only significant constituency for whatever pro-market institutional change might take place in

Russia (Boone and Rodionov 2002 and Guriev and Rachinsky 2005). On the other hand, their

dominance subverts institutions in their own favor at the expense of competition policy and entry

of new firms (Glaeser et al., 2003, Sonin, 2003, Acemoglu, 2005).

The other implication of non-cash mass privatization is the resulting fragility and ambiguity of

private property rights. As the owners have paid relatively little for the assets, voters believe that

privatization is not fair and the politicians can always find support for expropriation; this risk

undermines incentives to invest. Moreover, the negative attitude to privatization may eventually

result in a nationalization backlash (as observed in Russia since early 2004).

Given all the problems with privatization in Russia, was there a better alternative? Boycko,

Shleifer, and Vishny 1995 and Nellis 1999 argue the voucher privatization was the lesser evil.

Also, although Russian transition is taking longer than in CEE, it is still happening while in

Belarus and a few other CIS countries the reforms are delayed indefinitely. It is also important to

put the Russian experience in perspective. Grosfeld and Hashi 2003 show that even though

Czech Republic and Poland have pursued very different privatization policies, the ultimate

ownership structures are actually quite similar and are driven by the same factors. This is also

consistent with the studies in Table 4: privatization works in Russia as well whenever it results in

concentrated ownership (in particular, foreign ownership). By design, the Russian voucher

privatization program did not generate such ownership structure right away but the post-

privatization reallocation should eventually produce an efficient ownership structure. Because of

underdeveloped financial markets and legal system it has taken much longer than expected but

the recent comprehensive study of ownership structure in Russian industry (Guriev and

Rachinsky 2003) shows that this pattern is finally emerging.

The “Great Outlier”: China

Another case study often used by the opponents of privatization is the transition experience of

China. Allegedly, China is growing very fast without mass privatization, or even due to the

decision not to privatize. However, the existing evidence suggests that privatization works in

China as well (see Table 7). Foreign ownership and foreign listing (in particular, listing in Hong-

Kong) also positively affect performance.

It is also not true that China has not privatized, although initially the government decided to try

to improve SOE performance without privatization. As these hopes faded, China began

privatizing smaller SOEs or leasing them to managers in an exchange of a fixed share of the

resulting profit (Kikeri and Kolo 2005). This arrangement can be likened to partial privatization.

Much privatization has also occurred via foreign direct investment into China. As a result,

employment at Chinese state-owned industrial enterprises fell by half during 1990s.

China has also undertaken case-by-case privatizations of minority blocks for a few hundred large

SOEs. According to the World Bank Privatization Database, there were about 200 large

privatization deals between 1991 and 2003 that yielded revenues of more than 18 billion dollars–

about as much as the entire Russian privatization. However, partial privatization did not result in

substantial efficiency improvements; one reason was the prevalence of soft budget constraints

resulting from state banks making non-performing loans to SOEs. While further privatization is

certainly needed, the Chinese government is delaying full privatization of all SOEs out of fear of

high unemployment and the attendant negative political implications.

Conclusions and Policy Implications.

There is now a growing body of research on all aspects of privatization that uses detailed datasets

and up-to-date methodology. This research provides solid evidence that privatization “generally”

works, both for the firms that are privatized and for privatizing economies as a whole. While

privatization usually results both in increased productivity and reduced employment in privatized

firms, fears of negative overall effects at the economy level are not justified.

An important caveat here is that the benefits of privatizations depend on market institutions

being in place. The countries that manage to ensure property rights protection and the rule-of-

law, impose hard budget constraints, increase competition, and improve corporate governance

reap the largest benefits. If appropriate institutions are not in place, privatization often fails to

improve performance at the firm level and for the economy as a whole.

Emprical research provides a strong case for openness in privatization. Virtually all studies point

to a positive role of foreign investors. Firms privatized to foreign owners exhibit the highest

productivity increases. Moreover, as foreign owners usually buy the assets in a more competitive

bidding process, they are likely to pay a high price for the privatized assets—and the threat of

competition from foreign bidders also tends to raise the bids of domestic investors. Receiving a

high net privatization price is important, not only for fiscal reasons, but also for the political

legitimacy of emerging private property rights and the sustainability of reforms.

Once translated into policymakers’ language, the lessons from privatization research are quite

straightforward, as summarized below.

- Privatization can deliver substantial benefits. In some cases productivity doubles; in other

cases it increases by single percentage points. The “weighted average” productivity

increase is probably around 20 percent.

- Privatization is usually accompanied by either no change or a reduction in employment.

Privatizers should be prepared to handle the increased unemployment, and experience

suggests tht most privatizing countries manage this problem reasonably well.

- Privatization usually produces welfare gains beyond the increased productivity at the firm

level.

- Restructuring enterprises prior to privatization is unlikely to work.

- Mass privatization is usually inferior to the case by case approach. Non-cash privatization

is generally worse than trade sales and share issue privatization. The choice between

share issue privatizations and trade sales is driven by several factors-firm size, the need to

develop national stock markets, and the trade-off between better governance under

concentrated ownership versus the difficulty of finding a single buyer for a large

company.

- Policy trade-offs are resolved most effectively when privatization is transparent and open

to foreign investors. However, insiders and domestic investors always lobby against

allowing foreign participation and often stir up nationalistic sentiment. Precluding foreign

ownership always results in lower privatization prices and lower post-privatization

efficiency.

- Share issue privatization brings an important side benefit of contributing to the

development of the national stock market.

- Privatization works well wherever there are good institutions. China and Russia are not

outliers. China’s growth has come from private sector development, even as many SOEs

are still destroying value. Russia lacked good institutions yet the demand for institutions

has started to emerge. While this may be happening more slowly than expected–due to

macroeconomic instability, or inequality and illegitimacy of property rights–it is not clear

whether there was a better alternative, since openness to foreigners was probably

politically unacceptable.

References

Acemoglu, Daron. 2005. “The Form of Property Rights: Oligarchic vs. Democratic Societies”,

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Tab

le 1

. Sum

mar

y of

Em

piri

cal S

tudi

es C

ompa

ring

Pre

Ver

sus

Pos

t-P

riva

tiza

tion

Per

form

ance

Cha

nges

for

Fir

ms

Pri

vati

zed

Via

Pub

lic S

hare

O

ffer

ings

in N

on-T

rans

itio

n E

cono

mie

s

Stud

y

Sam

ple

desc

ript

ion,

stu

dy p

erio

d, a

nd m

etho

dolo

gy

Sum

mar

y of

em

piri

cal f

indi

ngs

and

conc

lusi

ons

Meg

gins

on,

Nas

h, a

nd v

an

Ran

denb

orgh

(1

994)

Com

pare

3-y

ear

aver

age

post

-pri

vati

zati

on f

inan

cial

and

ope

rati

ng

perf

orm

ance

rat

ios

to th

e 3-

year

pre

-pri

vatiz

atio

n va

lues

for

61

firm

s fr

om 1

8 co

untr

ies

and

32 in

dust

ries

fro

m 1

961-

1989

. Tes

t si

gnif

ican

ce o

f m

edia

n ch

ange

s in

pos

t ver

sus

pre-

priv

atiz

atio

n pe

riod

. Als

o em

ploy

bin

omia

l tes

ts f

or %

of

firm

s ch

angi

ng a

s pr

edic

ted.

Doc

umen

t eco

nom

ical

ly &

sta

tist

ical

ly s

igni

fica

nt p

ost-

priv

atiz

atio

n in

crea

ses

in o

utpu

t (re

al s

ales

), o

pera

ting

eff

icie

ncy,

pr

ofita

bilit

y, c

apita

l inv

estm

ent s

pend

ing,

and

div

iden

d pa

ymen

ts,

as w

ell a

s si

gnif

ican

t dec

reas

es in

leve

rage

. No

evid

ence

of

empl

oym

ent d

eclin

es a

fter

pri

vatiz

atio

n, b

ut s

igni

fica

nt c

hang

es in

fi

rm d

irec

tors

. Pri

vati

zati

on im

prov

es f

irm

per

form

ance

.

Bou

bakr

i and

C

osse

t (19

98)

Com

pare

3-y

ear

aver

age

post

-pri

vati

zati

on f

inan

cial

and

ope

rati

ng

perf

orm

ance

rat

ios

to th

e 3-

year

pre

-pri

vatiz

atio

n va

lues

for

79

com

pani

es f

rom

21

deve

lopi

ng c

ount

ries

and

32

indu

stri

es o

ver

the

peri

od 1

980-

1992

. Tes

ts f

or th

e si

gnif

ican

ce o

f m

edia

n ch

ange

s in

ra

tio v

alue

s in

pos

t ver

sus

pre-

priv

atiz

atio

n pe

riod

. Als

o em

ploy

bi

nom

ial t

ests

for

per

cent

age

of f

irm

s ch

angi

ng a

s pr

edic

ted.

Doc

umen

t eco

nom

ical

ly &

sta

tist

ical

ly s

igni

fica

nt p

ost-

priv

atiz

atio

n in

crea

ses

in o

utpu

t (re

al s

ales

), o

pera

ting

eff

icie

ncy,

pr

ofita

bilit

y, c

apita

l inv

estm

ent s

pend

ing,

div

iden

d pa

ymen

ts, a

nd

empl

oym

ent-

-as

wel

l as

sign

ific

ant d

ecre

ases

in le

vera

ge.

Per

form

ance

impr

ovem

ents

are

gen

eral

ly e

ven

larg

er th

an th

ose

docu

men

ted

by M

eggi

nson

, Nas

h, a

nd v

an R

ande

nbor

gh.

D’S

ouza

and

M

eggi

nson

(1

999)

Doc

umen

t off

erin

g te

rms,

met

hod

of s

ale,

and

ow

ners

hip

stru

ctur

e re

sulti

ng f

rom

pri

vatiz

atio

n of

78

com

pani

es f

rom

10

deve

lopi

ng

and

15 d

evel

oped

cou

ntri

es o

ver

the

peri

od 1

990-

94. T

hen

com

pare

3-

year

ave

rage

pos

t-pr

ivat

izat

ion

fina

ncia

l and

ope

rati

ng

perf

orm

ance

rat

ios

to th

e 3-

year

pre

-pri

vatiz

atio

n va

lues

for

a s

ub-

sam

ple

of 2

6 fi

rms

wit

h su

ffic

ient

dat

a. T

ests

for

the

sign

ific

ance

of

med

ian

chan

ges

in r

atio

val

ues

in p

ost v

ersu

s pr

e-pr

ivat

izat

ion

peri

od. A

lso

bino

mia

l tes

ts f

or %

of

firm

s ch

angi

ng a

s pr

edic

ted.

Doc

umen

t eco

nom

ical

ly &

sta

tist

ical

ly s

igni

fica

nt p

ost-

priv

atiz

atio

n in

crea

ses

in o

utpu

t (re

al s

ales

), o

pera

ting

eff

icie

ncy,

an

d pr

ofita

bilit

y, a

s w

ell a

s si

gnif

ican

t dec

reas

es in

leve

rage

. C

apita

l inv

estm

ent s

pend

ing

incr

ease

s--b

ut in

sign

ific

antl

y, w

hile

em

ploy

men

t dec

line

s si

gnif

ican

tly.

Mor

e of

the

firm

s pr

ivat

ized

in

the

1990

s ar

e fr

om te

leco

ms

and

othe

r re

gula

ted

indu

stri

es.

Pri

vatiz

atio

n im

prov

es f

irm

per

form

ance

.

Dew

ente

r an

d M

alat

esta

(20

00)

Com

pare

pre

- ve

rsus

pos

t-pr

ivat

izat

ion

perf

orm

ance

of

63 la

rge,

hi

gh-i

nfor

mat

ion

com

pani

es d

ives

ted

duri

ng 1

981-

94 o

ver

both

sh

ort-

term

[(+

1 to

+3)

vs

(-3

to -

1)]

and

long

-ter

m [

(+1

to +

5) v

s (

-10

to -

1)]

hori

zons

. Als

o ex

amin

e lo

ng-r

un s

tock

ret

urn

perf

orm

ance

of

pri

vati

zed

firm

s an

d co

mpa

re th

e re

lati

ve p

erfo

rman

ce o

f a

larg

e sa

mpl

e (1

,500

fir

m-y

ears

) of

sta

te a

nd p

riva

tely

ow

ned

firm

s du

ring

19

75, 1

985,

and

199

5.

Doc

umen

t sig

nifi

cant

incr

ease

s in

pro

fita

bilit

y (u

sing

net

inco

me)

an

d si

gnif

ican

t dec

reas

es in

leve

rage

and

labo

r in

tens

ity

(em

ploy

ees÷

sale

s) o

ver

both

sho

rt a

nd lo

ng-t

erm

com

pari

son

hori

zons

. Ope

ratin

g pr

ofits

incr

ease

pri

or to

pri

vatiz

atio

n, b

ut n

ot

afte

r. D

ocum

ent s

igni

fica

ntly

pos

itiv

e lo

ng-t

erm

(1-

5 ye

ars)

ab

norm

al s

tock

ret

urns

, mos

tly

conc

entr

ated

in H

unga

ry, P

olan

d,

and

the

UK

. Res

ults

als

o st

rong

ly in

dica

te th

at p

riva

te f

irm

s ou

t-pe

rfor

m s

tate

-ow

ned

firm

s.

Bou

bakr

i, C

osse

t an

d G

uedh

ami

(200

2)

Inve

stig

ate

the

role

of

owne

rshi

p st

ruct

ure

and

inve

stor

pro

tect

ion

in

corp

orat

e go

vern

ance

usi

ng a

sam

ple

of 1

70 f

irm

s fr

om 2

6 de

velo

ping

cou

ntri

es th

at w

ere

priv

atiz

ed o

ver

the

1980

-97.

S

peci

fica

lly

exam

ine

wha

t ow

ners

hip

stru

ctur

e re

sult

s fr

om

Doc

umen

t tha

t pri

vate

ow

ners

hip

tend

s to

con

cent

rate

ove

r ti

me

afte

r di

vest

men

t, an

d th

at p

riva

tizat

ion

inde

ed r

esul

ts in

a

relin

quis

hmen

t of

cont

rol b

y th

e pr

ivat

izin

g go

vern

men

t ove

r th

ree

year

s af

ter

initi

al s

ale.

Muc

h of

the

decr

ease

in s

tate

ow

ners

hip

is

priv

atiz

atio

n, a

nd h

ow it

evo

lves

sub

sequ

entl

y; h

ow th

e le

vel o

f ow

ners

hip

prot

ectio

n im

pact

s po

st-p

riva

tizat

ion

owne

rshi

p st

ruct

ure;

an

d ho

w o

wne

rshi

p st

ruct

ure

and

inve

stor

pro

tect

ion

rela

te to

fir

m

perf

orm

ance

.

abso

rbed

by

fore

ign

and

loca

l ins

titu

tiona

l inv

esto

rs, w

hile

the

aver

age

stak

e he

ld b

y in

divi

dual

s is

less

impo

rtan

t. A

lso

find

that

in

tera

ctio

n be

twee

n le

gal p

rote

ctio

n an

d ow

ners

hip

conc

entr

atio

n ha

s a

sign

ific

ant n

egat

ive

effe

ct o

n fi

rm p

erfo

rman

ce, s

ugge

stin

g th

at o

wne

rshi

p co

ncen

trat

ion

mat

ters

mor

e in

cou

ntri

es w

ith

wea

k le

gal p

rote

ctio

n.

Bou

bakr

i and

C

osse

t (20

03)

Exa

min

e pr

e- v

ersu

s po

st-p

riva

tizat

ion

perf

orm

ance

of

16 A

fric

an

firm

s pr

ivat

ized

thro

ugh

publ

ic s

hare

off

erin

g du

ring

the

peri

od

1989

-199

6. A

lso

sum

mar

ize

find

ings

of

thre

e ot

her

stud

ies

pert

aini

ng to

pri

vatiz

atio

n in

dev

elop

ing

coun

trie

s.

Doc

umen

t sig

nifi

cant

ly in

crea

sed

capi

tal s

pend

ing

by p

riva

tize

d fi

rms,

but

fin

d on

ly in

sign

ific

ant c

hang

es in

pro

fita

bilit

y,

effi

cien

cy, o

utpu

t and

leve

rage

.

Mac

quie

ira

and

Zur

ita (

1996

)

Com

pare

pre

- ve

rsus

pos

t-pr

ivat

izat

ion

perf

orm

ance

of

22 C

hile

an

com

pani

es p

riva

tized

fro

m 1

984

to 1

989.

Use

Meg

gins

on, N

ash

and

van

Ran

denb

orgh

(M

NR

) m

etho

dolo

gy to

per

form

ana

lysi

s fi

rst

wit

hout

adj

ustin

g fo

r ov

eral

l mar

ket m

ovem

ents

(as

in M

NR

), th

en

wit

h an

adj

ustm

ent f

or c

onte

mpo

rane

ous

chan

ges.

Una

djus

ted

resu

lts

virt

uall

y id

enti

cal t

o M

NR

: sig

nifi

cant

incr

ease

s in

out

put,

prof

itabi

lity,

em

ploy

men

t, in

vest

men

t, an

d di

vide

nd

paym

ents

. Aft

er a

djus

ting

for

mar

ket m

ovem

ents

, how

ever

, the

ch

ange

s in

out

put,

empl

oym

ent,

and

liqui

dity

are

no

long

er

sign

ific

ant,

and

leve

rage

incr

ease

s si

gnif

ican

tly.

Ver

brug

ge,

Meg

gins

on a

nd

Ow

ens

(199

9)

Stud

y of

feri

ng te

rms

and

shar

e ow

ners

hip

resu

lts f

or 6

5 ba

nks

full

y or

par

tially

pri

vatiz

ed f

rom

198

1 to

199

6. T

hen

com

pare

pre

and

po

st-p

riva

tizat

ion

perf

orm

ance

cha

nges

for

32

bank

s in

OE

CD

co

untr

ies

and

5 in

dev

elop

ing

coun

trie

s.

Doc

umen

t mod

erat

e pe

rfor

man

ce im

prov

emen

ts in

OE

CD

co

untr

ies.

Rat

ios

prox

ying

for

pro

fita

bilit

y, f

ee in

com

e (n

on-

inte

rest

inco

me

as f

ract

ion

of to

tal)

, and

cap

ital

ade

quac

y in

crea

se

sign

ific

antl

y; le

vera

ge r

atio

dec

lines

sig

nifi

cant

ly. D

ocum

ent l

arge

, on

goin

g st

ate

owne

rshi

p, a

nd s

igni

fica

ntly

pos

itiv

e in

itial

ret

urns

to

IPO

inve

stor

s.

Boa

rdm

an,

Lau

rin

and

Vin

ing

(200

0)

Com

pare

3-y

ear

aver

age

post

-pri

vati

zati

on f

inan

cial

and

ope

rati

ng

perf

orm

ance

rat

ios

to th

e 5-

year

pre

-pri

vatiz

atio

n va

lues

for

9

Can

adia

n fi

rms

priv

atiz

ed f

rom

198

8 to

199

5. A

lso

com

pute

long

-ru

n (u

p to

5 y

ears

) st

ock

retu

rns

for

dive

sted

fir

ms.

Find

that

pro

fita

bilit

y, m

easu

red

as r

etur

n on

sal

es o

r as

sets

, mor

e th

an d

oubl

es a

fter

pri

vatiz

atio

n, w

hile

eff

icie

ncy

and

sale

s al

so

incr

ease

sig

nifi

cant

ly (

thou

gh le

ss d

rast

ical

ly).

Lev

erag

e an

d em

ploy

men

t dec

line

sig

nifi

cant

ly, w

hile

cap

ital

spe

ndin

g in

crea

ses

sign

ific

antl

y. P

riva

tize

d fi

rms

also

sig

nifi

cant

ly o

ut-p

erfo

rm

Can

adia

n st

ock

mar

ket o

ver

all l

ong-

term

hol

ding

per

iods

.

Om

ran

(200

1)

Stud

ies

perf

orm

ance

cha

nges

for

69

Egy

ptia

n co

mpa

nies

pri

vatiz

ed

betw

een

1994

and

199

8. O

f th

ese,

33

wer

e m

ajor

ity s

ales

(>

50%

ow

ners

hip)

, 18

wer

e pa

rtia

l sal

es, 1

2 w

ere

sold

to e

mpl

oyee

sh

areh

oldi

ng a

ssoc

iati

ons

(ES

As)

, and

6 w

ere

sold

to a

ncho

r in

vest

ors.

Find

that

pro

fita

bilit

y, o

pera

ting

eff

icie

ncy,

cap

ital s

pend

ing,

di

vide

nds

and

liqui

dity

incr

ease

sig

nifi

cant

ly a

fter

pri

vatiz

atio

n,

whi

le le

vera

ge, e

mpl

oym

ent a

nd f

inan

cial

ris

k (m

easu

red

as th

e in

vers

e of

tim

es in

tere

st e

arne

d) d

ecli

ne s

igni

fica

ntly

. Per

form

ance

ch

ange

s pe

rvas

ive

acro

ss s

ubgr

oups

, but

som

e ev

iden

ce th

at f

ull

priv

atiz

atio

n w

orks

bet

ter

than

par

tial,

and

that

sal

es to

ES

As

wor

k be

tter

than

oth

ers.

Om

ran

(200

2)

Per

form

sim

ilar

stu

dy to

Om

ran

(200

1), b

ut a

lso

com

pare

pe

rfor

man

ce o

f pr

ivat

ized

com

pani

es to

a m

atch

ed s

et o

f 54

fir

ms

that

rem

aine

d st

ate

owne

d.

Find

that

SO

Es’

per

form

ance

als

o im

prov

es s

igni

fica

ntly

dur

ing

post

-pri

vatiz

atio

n pe

riod

, and

that

pri

vatiz

ed f

irm

s di

d no

t per

form

an

y be

tter

than

SO

Es.

Okt

en a

nd A

rin

(200

1)

Tes

t eff

ect o

f pr

ivat

izat

ion

on f

irm

eff

icie

ncy

and

tech

nolo

gy c

hoic

e us

ing

pane

l dat

a se

t of

23 T

urki

sh c

emen

t fir

ms

priv

atiz

ed b

etw

een

1989

and

199

8. E

mpl

oy M

NR

test

s fi

rst,

then

pan

el d

ata

regr

essi

on

to e

xplo

re d

eter

min

ants

of

perf

orm

ance

cha

nges

.

Doc

umen

t tha

t pro

duct

ivit

y, c

apac

ity

util

izat

ion,

out

put a

nd

inve

stm

ent s

igni

fica

ntly

incr

ease

aft

er p

riva

tizat

ion,

whi

le

empl

oym

ent,

per

unit

cost

s an

d pr

ices

dec

line

sign

ific

antl

y.

Cap

acit

y in

crea

ses

insi

gnif

ican

tly.

Pan

el r

egre

ssio

n sh

ows

outp

ut,

labo

r pr

oduc

tivit

y, c

apita

l and

cap

ital t

o la

bor

ratio

incr

ease

si

gnif

ican

tly,

whi

le e

mpl

oym

ent f

alls

. Per

uni

t cos

ts a

nd p

rice

s al

so

fall.

Pri

vatiz

atio

n cl

earl

y in

duce

s te

chno

logy

shi

ft.

Sun

and

Ton

g (2

002)

C

ompa

re p

re v

s po

st-p

riva

tizat

ion

fina

ncia

l and

ope

ratin

g pe

rfor

man

ce o

f a

sam

ple

of 2

4 M

alay

sian

fir

ms

dive

sted

via

pub

lic

shar

e of

feri

ng b

y th

e en

d of

199

7. E

mpl

oy M

NR

test

s fi

rst,

then

pa

nel d

ata

regr

essi

on to

fur

ther

exa

min

e so

urce

s of

per

form

ance

ch

ange

s.

Find

that

pri

vati

zed

com

pani

es in

crea

se th

eir

abso

lute

leve

l of

prof

its th

ree-

fold

, mor

e th

an d

oubl

e re

al s

ales

, and

als

o si

gnif

ican

tly

incr

ease

div

iden

ds a

nd r

educ

e le

vera

ge. R

esul

ts a

re

robu

st a

cros

s va

riou

s su

b-sa

mpl

es. S

tock

s of

pri

vatiz

ed f

irm

s ea

rn

norm

al r

etur

ns (

insi

gnif

ican

tly

diff

eren

t fro

m m

arke

t ind

ex).

R

egre

ssio

n an

alys

is s

how

s th

at in

stitu

tiona

l inv

esto

rs a

nd d

irec

tors

ha

ve p

osit

ive

impa

ct o

n pr

ivat

ized

fir

m p

erfo

rman

ce, a

nd th

at

optio

n sc

hem

es, r

athe

r th

an d

irec

t rem

uner

atio

n, g

ive

bette

r in

cent

ives

to m

anag

ers.

Sun

and

Ton

g (2

002)

T

est w

heth

er p

riva

tizat

ion

impr

oves

fin

anci

al a

nd o

pera

ting

perf

orm

ance

of

31 S

inga

pore

an c

ompa

nies

div

este

d th

roug

h pu

blic

sh

are

offe

ring

bet

wee

n 19

75 a

nd 1

998.

Em

ploy

MN

R te

sts

firs

t, th

en p

anel

dat

a re

gres

sion

to f

urth

er e

xam

ine

sour

ces

of

perf

orm

ance

cha

nges

.

Find

no

sign

ific

ant c

hang

e af

ter

priv

atiz

atio

n in

any

var

iabl

e ex

cept

ou

tput

(si

gnif

ican

t inc

reas

e) u

sing

MN

R m

etho

ds. T

hen

use

regr

essi

on a

naly

sis

to s

how

that

out

put a

nd le

vera

ge im

prov

e bu

t ef

fici

ency

det

erio

rate

s af

ter

priv

atiz

atio

n. C

oncl

ude

that

ther

e is

lit

tle p

erfo

rman

ce im

prov

emen

t aft

er o

wne

rshi

p ch

ange

bec

ause

Si

ngap

orea

n SO

Es

wer

e un

usua

lly

wel

l man

aged

bef

ore

dive

stm

ent.

Tab

le 2

. Sum

mar

y of

Em

piri

cal S

tudi

es o

f P

riva

tiza

tion

: D

evel

oped

Cou

ntri

es

Stud

y Sa

mpl

e de

scri

ptio

n, s

tudy

per

iod,

and

met

hodo

logy

Su

mm

ary

of e

mpi

rica

l fin

ding

s an

d co

nclu

sion

s

Gal

al,

Jone

s,

Tan

don,

and

V

ogel

sang

(1

994)

Com

pare

act

ual p

ost-

priv

atiz

atio

n pe

rfor

man

ce o

f 12

la

rge

firm

s (m

ostl

y ai

rlin

es a

nd r

egul

ated

uti

litie

s) in

B

rita

in, C

hile

, Mal

aysi

a, a

nd M

exic

o to

pre

dict

ed

perf

orm

ance

of

thes

e fi

rms

had

they

rem

aine

d S

OE

s.

Doc

umen

t net

wel

fare

gai

ns in

11

of th

e 12

cas

es th

at e

qual

, on

aver

age,

26%

of

the

firm

s’ p

re-d

ives

titu

re s

ales

. Fin

d no

cas

e w

here

wor

kers

are

mad

e w

orse

off

, and

3

whe

re w

orke

rs a

re m

ade

sign

ific

antl

y be

tter

off

.

Gre

en a

nd

Vog

elsa

ng

(199

4)

Pro

vide

a h

isto

rica

l ove

rvie

w o

f B

A’s

evo

luti

on a

s a

stat

e ow

ned

ente

rpri

se th

roug

h its

fir

st y

ears

as

a fu

lly

priv

atiz

ed c

ompa

ny. A

lso

anal

yze

how

ope

rati

ng a

nd

fina

ncia

l per

form

ance

evo

lves

dur

ing

the

tim

e be

fore

an

d af

ter

com

pany

’s s

ale.

The

y sh

ow th

at B

A s

uffe

red

seve

rely

dur

ing

the

airl

ine

depr

essi

on o

f th

e ea

rly

1980

s,

but t

hat t

he o

pera

tion

al c

hang

es a

nd r

estr

uctu

ring

that

the

man

agem

ent t

eam

exe

cute

s du

ring

the

mid

198

0s p

aves

the

way

for

the

succ

essf

ul s

ale

of th

e go

vern

men

t’s

100

perc

ent o

wne

rshi

p in

198

7.

Mar

tin &

P

arke

r (1

995)

Usi

ng tw

o m

easu

res

(RO

R o

n ca

pita

l em

ploy

ed a

nd

annu

al g

row

th in

val

ue-a

dded

per

em

ploy

ee-h

our)

, ex

amin

e w

heth

er 1

1 B

ritis

h fi

rms

priv

atiz

ed d

urin

g 19

81-8

8 im

prov

e pe

rfor

man

ce a

fter

div

estm

ent.

Als

o at

tem

pt to

con

trol

for

bus

ines

s cy

cle

effe

cts.

Mix

ed r

esul

ts. O

utri

ght p

erfo

rman

ce im

prov

emen

ts a

fter

pri

vatiz

atio

n fo

und

in le

ss

than

hal

f of

fir

m-m

easu

res

stud

ied.

Sev

eral

impr

ove

prio

r to

div

esti

ture

, ind

icat

ing

an

init

ial “

shak

e-ou

t” e

ffec

t upo

n pr

ivat

izat

ion

anno

unce

men

t.

Pri

ce a

nd

Wey

man

-Jo

nes

(199

6)

Mea

sure

the

tech

nica

l eff

icie

ncy

of th

e U

.K. n

atur

al

gas

indu

stry

bef

ore

and

afte

r it

s 19

86 p

riva

tizat

ion

and

asso

ciat

ed r

egul

ator

y ch

ange

s us

ing

Mal

mqu

ist i

ndic

es

and

non-

para

met

ric

fron

tier

anal

ysis

.

Show

that

the

indu

stry

’s r

ate

of p

rodu

ctiv

ity

grow

th in

crea

sed

sign

ific

antl

y af

ter

priv

atiz

atio

n—th

ough

not

as

muc

h as

it c

ould

hav

e if

the

indu

stry

had

bee

n re

stru

ctur

ed a

nd s

ubje

cted

to d

irec

t com

petit

ion

and

mor

e ap

prop

riat

e re

gula

tion.

New

berr

y an

d P

ollit

t (1

997)

Per

form

a c

ost-

bene

fit a

naly

sis

of th

e 19

90

rest

ruct

urin

g an

d pr

ivat

izat

ion

of th

e C

entr

al

Ele

ctri

city

Gen

erat

ing

Boa

rd (

CE

GB

). C

ompa

re th

e ac

tual

per

form

ance

of

the

priv

atiz

ed f

irm

s to

a c

ount

er-

fact

ual a

ssum

ing

CE

GB

had

rem

aine

d st

ate-

owne

d.

The

res

truc

turi

ng/p

riva

tiza

tion

of

CE

GB

was

“w

orth

it,”

in th

at th

ere

is a

per

man

ent

cost

red

ucti

on o

f 5

perc

ent p

er y

ear.

Pro

duce

rs a

nd s

hare

hold

ers

capt

ure

all t

his

bene

fit a

nd m

ore.

Con

sum

ers

and

the

gove

rnm

ent l

ose.

Als

o sh

ow th

at a

ltern

ativ

e fu

el

purc

hase

s in

volv

e un

nece

ssar

ily

high

cos

ts a

nd w

ealth

flo

ws

out o

f th

e co

untr

y.

Lau

rin

and

Boz

ec

(200

0)

Com

pare

s pr

oduc

tivit

y an

d pr

ofita

bilit

y of

two

larg

e C

anad

ian

rail

carr

iers

, bef

ore

and

afte

r th

e 19

95

priv

atiz

atio

n of

Can

adia

n N

atio

nal (

CN

). C

ompa

res

acco

unti

ng r

atio

s fo

r en

tire

17-

year

per

iod

1981

-199

7 an

d fo

r th

ree

sub-

peri

ods:

the

full

y st

ate-

owne

d er

a (1

981-

91),

the

pre-

priv

atiz

atio

n pe

riod

(19

92-9

5), a

nd

Tot

al f

acto

r pr

oduc

tivit

y of

CN

muc

h lo

wer

than

that

of

priv

atel

y ow

ned

Can

adia

n P

acif

ic (

CP

) du

ring

198

1-91

per

iod,

but

bec

omes

just

as

effi

cien

t dur

ing

pre-

priv

atiz

atio

n (1

992-

95)

peri

od, t

hen

exce

eds

it a

fter

199

5. C

N s

tock

pri

ce o

ut-

perf

orm

s C

P, t

he tr

ansp

orta

tion

indu

stry

, and

the

Can

adia

n m

arke

t aft

er 1

995.

Bot

h fi

rms

shed

wor

kers

aft

er 1

992,

but

CN

’s e

mpl

oym

ent d

eclin

es b

y m

ore

(34%

vs

18%

) as

ave

rage

pro

duct

ivit

y al

mos

t dou

bles

(97

% in

crea

se).

CN

’s c

apit

al s

pend

ing

the

post

-pri

vati

zati

on e

ra. A

lso

exam

ines

sto

ck r

etur

ns

from

199

5-98

. Cre

ates

a s

ix-f

irm

com

pari

son

grou

p of

C

anad

ian

priv

atiz

atio

ns, a

nd c

ompu

tes

acco

unti

ng

ratio

s an

d st

ock

retu

rns

for

thes

e fi

rms

as w

ell.

incr

ease

s si

gnif

ican

tly,

thou

gh C

P in

crea

ses

mor

e. S

ix-f

irm

Can

adia

n pr

ivat

izat

ion

com

pari

son

grou

p al

so e

xper

ienc

e si

gnif

ican

t inc

reas

es in

inve

stm

ent s

pend

ing

and

prod

uctiv

ity,

and

a s

igni

fica

nt d

eclin

e in

em

ploy

men

t.

Vill

alon

ga

(200

0)

Exa

min

es th

e ef

fect

of

priv

atiz

atio

n on

eff

icie

ncy

for

24 S

pani

sh f

irm

s fu

lly

dive

sted

bet

wee

n 19

85 a

nd

1993

. Tes

ts f

or s

epar

ate

effe

cts

of o

wne

rshi

p ch

ange

, on

ce o

ther

pol

itica

l and

org

aniz

atio

nal f

acto

rs a

nd ti

me

peri

od (

stat

e of

the

busi

ness

cyc

le)

effe

cts

acco

unte

d fo

r.

Find

insi

gnif

ican

t cha

nges

in le

vel a

nd g

row

th r

ate

of e

ffic

ienc

y af

ter

priv

atiz

atio

n.

Sign

ific

ant p

ositi

ve e

ffec

t fou

nd f

or b

usin

ess

cycl

e su

gges

ts g

over

nmen

t sol

d fi

rms

duri

ng r

eces

sion

s. C

apita

l int

ensi

ty, f

orei

gn o

wne

rshi

p an

d si

ze a

lso

posi

tivel

y re

late

d to

eff

icie

ncy

impr

ovem

ents

. Pri

vati

zati

on s

eem

s to

dec

reas

e ef

fici

ency

for

5 a

nd 6

ye

ars

afte

r di

vest

itur

e, b

ut in

crea

se e

ffic

ienc

y 7

and

8 ye

ars

afte

r an

d 4

and

3 ye

ars

befo

re, s

ugge

stin

g im

port

ance

of

tim

e ef

fect

s.

Flor

io

(200

1)

Pre

sent

s an

ana

lysi

s of

the

wel

fare

impa

ct o

f th

e U

K

priv

atiz

atio

n pr

ogra

m 1

979-

1997

. Con

side

rs th

e im

pact

on

five

type

s of

age

nts:

fir

ms,

em

ploy

ees,

sh

areh

olde

rs, c

onsu

mer

s an

d ta

xpay

ers.

Con

clud

es th

at p

riva

tizat

ion

has

mod

est e

ffec

ts o

n ef

fici

ency

of

prod

uctio

n an

d co

nsum

ptio

n, b

ut h

as im

port

ant e

ffec

ts o

n di

stri

butio

n of

inco

me

and

wea

lth.

A

ckno

wle

dges

fis

cal b

enef

its, l

ower

pri

ces

in m

ost a

reas

, pro

duct

ivit

y gr

owth

, but

as

sert

s th

ese

wou

ld h

ave

been

ach

ieve

d un

der

cont

inue

d st

ate

owne

rshi

p (d

ue to

ex

trap

olat

ion

of e

xist

ing

tren

ds).

Cal

cula

te th

at, a

t bes

t, th

e N

PV

of

the

wel

fare

cha

nge

for

each

Bri

tish

con

sum

er is

less

than

£1,

000,

and

wou

ld b

e lo

wer

if d

istr

ibut

iona

l is

sues

acc

ount

ed f

or.

Dum

ontie

r an

d L

auri

n (2

002)

Inve

stig

ate

the

valu

e th

at is

cre

ated

or

lost

dur

ing

the

stat

e ow

ners

hip

peri

od f

or e

ach

firm

nat

iona

lized

du

ring

198

2 an

d th

en r

e-pr

ivat

ized

bet

wee

n 19

86 a

nd

1995

. The

n te

sts

whe

ther

pri

vatiz

atio

n im

prov

es

perf

orm

ance

ove

r th

at a

chie

ved

duri

ng p

ost-

1982

na

tiona

lize

d pe

riod

. 46

com

pani

es (

39 b

anks

and

fiv

e in

dust

rial

fir

ms)

wer

e na

tiona

lize

d an

d th

en r

e-pr

ivat

ized

.

Find

that

gov

ernm

ent c

reat

ed v

alue

in n

atio

nali

zed

firm

s, b

ut s

tate

and

taxp

ayer

s di

d no

t ben

efit

bec

ause

of

prem

ium

pai

d to

sha

reho

lder

s up

on n

atio

nali

zati

on (

20%

) an

d un

derp

rici

ng o

f IP

O a

t pri

vati

zatio

n. F

inan

cial

and

ope

ratin

g pe

rfor

man

ce o

f co

mpa

nies

impr

oved

dur

ing

nati

onal

izat

ion

phas

e, th

en im

prov

ed e

ven

mor

e af

ter

priv

atiz

atio

n. P

rofi

ts a

nd s

ales

incr

ease

d af

ter

priv

atiz

atio

n, w

hile

eff

icie

ncy

impr

oved

ov

er a

ll th

ree

peri

ods.

Em

ploy

men

t fel

l dur

ing

natio

naliz

ed p

erio

d, b

ut in

crea

sed

(due

to

hig

her

sale

s) a

fter

pri

vatiz

atio

n. C

apita

l spe

ndin

g hi

ghes

t dur

ing

natio

naliz

ed

peri

od, d

ue to

gov

ernm

ent s

ubsi

dies

. Lev

erag

e de

clin

ed d

urin

g na

tiona

lized

per

iod,

bu

t inc

reas

ed a

fter

pri

vatiz

atio

n. D

ivid

ends

dec

line

duri

ng n

atio

naliz

ed p

erio

d, b

ut

incr

ease

aft

er p

riva

tizat

ion.

Saa

l and

P

arke

r (2

003)

Exa

min

e th

e pr

oduc

tivit

y an

d pr

ice

perf

orm

ance

of

the

priv

atiz

ed w

ater

and

sew

erag

e co

mpa

nies

of

Eng

land

an

d W

ales

aft

er th

e in

dust

ry is

pri

vati

zed

and

a ne

w

regu

lato

ry r

egim

e im

pose

d in

198

9. E

xam

ines

join

t im

pact

of

priv

atiz

atio

n an

d ne

w e

cono

mic

reg

ulat

ory

envi

ronm

ent o

n pe

rfor

man

ce.

Find

no

sign

ific

ant e

vide

nce

that

pro

duct

ivit

y gr

owth

, mea

sure

d by

gro

wth

in T

FP, i

s im

prov

ed b

y pr

ivat

izat

ion—

desp

ite r

educ

tions

in la

bor

usag

e. A

lso

find

that

incr

ease

s in

out

put p

rice

s ha

ve o

utst

ripp

ed in

crea

sed

inpu

t pri

ces,

lead

ing

to s

igni

fica

ntly

hig

her

econ

omic

pro

fits

aft

er p

riva

tizat

ion.

Tab

le 3

. Sum

mar

y of

Em

piri

cal S

tudi

es o

f P

riva

tiza

tion

in L

atin

Am

eric

a

Stud

y Sa

mpl

e de

scri

ptio

n, s

tudy

per

iod,

and

met

hodo

logy

Su

mm

ary

of e

mpi

rica

l fin

ding

s an

d co

nclu

sion

s

Ram

amur

ti (1

996)

Su

rvey

s st

udie

s of

fou

r te

leco

m, t

wo

airl

ine,

and

one

toll-

road

pri

vatiz

atio

n pr

ogra

ms

in L

atin

Am

eric

a du

ring

per

iod

1987

-199

1. A

lso

disc

usse

s po

liti

cal e

cono

mic

issu

es a

nd

met

hods

use

d to

ove

rcom

e bu

reau

crat

ic a

nd id

eolo

gica

l op

posi

tion

to d

ives

titu

re.

Con

clud

es p

riva

tizat

ion

very

pos

itive

for

tele

com

s, p

artl

y du

e to

sco

pe f

or

tech

nolo

gy, c

apita

l inv

estm

ent,

and

attr

activ

enes

s of

off

er te

rms.

Muc

h le

ss

scop

e fo

r pr

oduc

tivit

y im

prov

emen

ts f

or a

irlin

es a

nd r

oads

, and

littl

e im

prov

emen

t obs

erve

d.

Ram

amur

ti (1

997)

E

xam

ines

res

truc

turi

ng a

nd p

riva

tizat

ion

of F

erro

cari

lla

Arg

enti

nos,

the

nati

onal

rai

lroa

d, in

199

0. T

ests

whe

ther

pr

oduc

tivit

y, e

mpl

oym

ent,

and

need

for

ope

ratin

g su

bsid

ies

(equ

al to

1%

of

GD

P in

199

0) c

hang

e si

gnif

ican

tly

afte

r di

vest

itur

e.

Doc

umen

ts a

370

% im

prov

emen

t in

labo

r pr

oduc

tivit

y an

d a

78.7

% d

eclin

e in

em

ploy

men

t (fr

om 9

2,00

0 to

19,

682)

. Ser

vice

s w

ere

expa

nded

and

im

prov

ed, a

nd d

eliv

ered

at l

ower

cos

t to

cons

umer

s. N

eed

for

oper

atin

g su

bsid

ies

larg

ely

elim

inat

ed.

La

Por

ta a

nd

Lóp

ez-d

e-Si

lane

s (1

999)

Tes

ts w

heth

er p

erfo

rman

ce o

f 21

8 SO

Es

priv

atiz

ed th

roug

h Ju

ne 1

992

impr

oves

aft

er d

ives

tmen

t. C

ompa

res

perf

orm

ance

wit

h in

dust

ry-m

atch

ed f

irm

s, a

nd s

plits

im

prov

emen

ts d

ocum

ente

d be

twee

n in

dust

ry a

nd f

irm

-sp

ecif

ic in

flue

nces

.

Out

put o

f pr

ivat

ized

fir

ms

incr

ease

d 54

.3%

, whi

le e

mpl

oym

ent d

eclin

ed b

y ha

lf (

thou

gh w

ages

for

rem

aini

ng w

orke

rs in

crea

sed)

. Fir

ms

achi

eved

a 2

4 pe

rcen

tage

poi

nt in

crea

se in

ope

ratin

g pr

ofita

bilit

y, e

lim

inat

ing

need

for

su

bsid

ies

equa

l to

12.7

% o

f G

DP

. Hig

her

prod

uct p

rice

s ex

plai

n 5%

of

impr

ovem

ent;

tran

sfer

s fr

om la

id-o

ff w

orke

rs, 3

1%, a

nd in

cent

ive-

rela

ted

prod

uctiv

ity

gain

s ac

coun

t for

rem

aini

ng 6

4%.

Pam

bo a

nd

Ram

irez

(20

01)

Per

form

s ex

pos

t mea

suri

ng a

nd e

cono

met

ric

anal

ysis

of

30

larg

e C

olom

bian

man

ufac

turi

ng f

irm

s an

d 33

pow

er

gene

ratio

n pl

ants

pri

vatiz

ed d

urin

g 19

93-1

998

peri

od.

Em

ploy

bot

h pa

nel d

ata

regr

essi

on a

naly

sis

and

MN

R

mat

ched

pre

vs

post

-pri

vati

zati

on te

sts.

Pan

el d

ata

anal

ysis

fin

ds v

ery

posi

tive

resu

lts f

or p

riva

tized

man

ufac

turi

ng

firm

s. T

otal

fac

tor

prod

uctiv

ity

indi

ces

incr

ease

fro

m 0

.27

to 0

.50

poin

ts,

whi

le p

rofi

t rat

es in

crea

se b

y 1.

2 pe

rcen

tage

poi

nts.

Pro

duct

ive

effi

cien

cy in

po

wer

pro

duct

ion

not s

yste

mat

ical

ly r

elat

ed to

ow

ners

hip

chan

ges,

onc

e ot

her

fact

ors

acco

unte

d fo

r.

Gal

iani

, Ger

tler

and

Scha

rgro

dsky

(2

001)

Exa

min

es th

e im

pact

of

priv

atiz

ing

wat

er s

ervi

ces

on th

e m

orta

lity

of y

oung

chi

ldre

n in

Arg

enti

na. B

etw

een

1991

an

d 20

00, 3

0% o

f A

rgen

tina

’s p

ublic

wat

er c

ompa

nies

co

veri

ng 6

0% o

f th

e po

pula

tion

wer

e pr

ivat

ized

. Est

imat

e im

pact

of

priv

atiz

atio

n on

chi

ld m

orta

lity

usin

g th

ree

diff

eren

t mea

sure

s.

All

thre

e m

easu

res

show

that

chi

ld m

orta

lity

fel

l 5 to

8 p

erce

nt in

are

as th

at

priv

atiz

ed th

eir

wat

er s

ervi

ces.

Inc

reas

e in

acc

ess

to a

nd q

uali

ty o

f w

ater

ca

used

the

redu

ctio

n in

mor

tali

ty. I

nves

tmen

t inc

reas

ed, s

ervi

ce p

rovi

sion

be

cam

e m

ore

effi

cien

t and

qua

lity

impr

oved

. The

num

ber

of p

eopl

e co

nnec

ted

to th

e ne

twor

k in

crea

sed

dram

atic

ally

, but

pri

ces

did

not.

Est

ache

(20

02)

Ask

s w

heth

er A

rgen

tina

’s 1

990s

uti

liti

es p

riva

tiza

tion

pr

ogra

m w

as a

cur

e or

a d

isea

se. C

erta

inly

, the

pr

ivat

izat

ions

of

Arg

enti

na’s

ele

ctri

city

, gas

, wat

er a

nd

He

find

s th

at p

riva

tizat

ion,

per

se,

was

qui

te s

ucce

ssfu

l: it

rai

sed

sign

ific

ant

reve

nues

for

the

stat

e an

d th

e ne

w p

riva

te o

pera

tors

incr

ease

d ef

fici

ency

and

se

rvic

e le

vels

sig

nifi

cant

ly—

wit

hout

sig

nifi

cant

ly r

aisi

ng th

e ra

tes

they

sani

tatio

n an

d te

leco

mm

unic

atio

ns u

tiliti

es a

re to

day

the

obje

ct o

f in

tens

e an

ger

wit

hin

the

coun

try,

but

Est

ache

at

tem

pts

to d

eter

min

e w

heth

er th

is a

nger

is a

ppro

pria

te. H

e fi

rst n

otes

that

pri

vatiz

atio

n oc

curr

ed ju

st b

efor

e th

e co

untr

y w

as g

ripp

ed b

y a

mas

sive

pol

itica

l and

eco

nom

ic

colla

pse

and

he tr

ies

to s

epar

ate

the

impa

ct o

f pr

ivat

izat

ion

from

the

over

whe

lmin

g im

pact

of

the

colla

pse.

char

ged.

The

rat

es c

harg

ed c

onsu

mer

s, h

owev

er, i

ncre

ased

sig

nifi

cant

ly,

sinc

e th

e go

vern

men

t exp

loite

d th

e ne

w o

wne

rshi

p st

ruct

ure

to im

pose

in

dire

ct ta

xes

that

it c

ould

not

impo

se th

roug

h di

rect

levi

es. O

nce

the

econ

omic

cri

sis

bega

n, g

over

nmen

t act

ions

dis

crim

inat

ed a

gain

st th

e pr

ivat

ized

com

pani

es a

nd f

orei

gn o

pera

tors

wer

e vi

lifi

ed a

s ex

ploi

ters

whe

n th

ey tr

ied

to r

aise

fee

s in

line

wit

h in

flat

ion

and

deva

luat

ion.

Bir

ch a

nd H

aar

(200

0)

A d

escr

ipti

ve s

tudy

of

the

priv

atiz

atio

n ex

peri

ence

in th

e la

st tw

o de

cade

s in

Arg

enti

na, B

razi

l, C

hile

, Col

ombi

a,

Mex

ico,

Per

u, V

enez

uela

and

som

e C

arib

bean

cou

ntri

es.

The

aut

hors

fin

d si

zeab

le e

ffec

ts o

f pr

ivat

izat

ion

on th

e m

acro

econ

omic

co

nditi

ons

(bot

h in

the

shor

t and

long

run

). T

hey

also

sho

w a

pos

itive

eff

ect

of p

riva

tizat

ion

on p

rodu

ctiv

ity

and

a ne

gati

ve e

ffec

t on

empl

oym

ent.

Chi

sari

, Est

ache

an

d R

omer

o (1

999)

The

stu

dy a

sses

ses

mac

roec

onom

ic a

nd d

istr

ibut

iona

l ef

fect

s of

pri

vati

zati

on in

Arg

enti

na’s

gas

, ele

ctri

city

, te

leco

mm

unic

atio

ns, a

nd w

ater

sec

tors

. It u

ses

a co

mpu

tabl

e ge

nera

l equ

ilibr

ium

mod

el.

The

stu

dy c

oncl

udes

that

eff

ecti

ve r

egul

atio

n tr

ansl

ates

into

ann

ual g

ains

of

abou

t 1.2

5 bi

llion

of

GD

P. P

riva

tizat

ion

cann

ot b

e bl

amed

for

incr

ease

d un

empl

oym

ent a

s it

may

be

due

to in

effe

ctiv

e re

gula

tion.

Cho

ng a

nd

Sanc

hez

(200

3)

A d

etai

led

anal

ysis

of

the

cont

ract

ual a

rran

gem

ents

of

priv

atiz

atio

ns a

nd c

once

ssio

ns in

infr

astr

uctu

re. I

t cov

ers

four

cou

ntri

es: B

razi

l, C

hile

, Col

ombi

a an

d P

eru.

It c

oncl

udes

that

cle

ar, h

omog

eneo

us, t

rans

pare

nt a

nd c

redi

ble

inst

itutio

nal

proc

esse

s du

ring

pri

vatiz

atio

n yi

eld

posi

tive

outc

omes

.

Cla

rke

and

Cul

l (2

001)

T

his

stud

y us

es e

vide

nce

from

the

priv

atiz

atio

n pr

ogra

m o

f pr

ovin

cial

ban

ks in

Arg

enti

na d

urin

g th

e 19

90s.

It t

ests

ec

onom

etri

call

y ho

w p

oliti

cal c

onst

rain

ts a

ffec

t tr

ansa

ctio

ns d

urin

g ba

nk p

riva

tizat

ion.

It f

inds

that

pro

vinc

es w

ith

high

fis

cal d

efic

its

wer

e w

illin

g to

, fir

st, a

ccep

t la

yoff

s; a

nd s

econ

d, to

gua

rant

ee a

larg

er p

art o

f th

e pr

ivat

ized

ban

k’s

port

folio

in r

etur

n fo

r a

high

er s

ale

pric

e.

Gal

al, J

ones

, T

ando

n, a

nd

Vog

elsa

ng

(199

4)

It c

ompa

res

post

-pri

vatiz

atio

n pe

rfor

man

ce o

f 12

larg

e fi

rms

from

Chi

le a

nd M

exic

o. T

he c

ompa

nies

cov

ered

are

m

ostl

y ai

rlin

es a

nd r

egul

ated

util

itie

s.

Thi

s st

udy

find

s ne

t wel

fare

gai

ns in

11

of 1

2 ca

ses

cove

red.

Gai

ns a

re o

n av

erag

e eq

ual t

o 26

per

cent

of

the

firm

s’ p

re-d

ives

titu

re s

ales

. It

fin

ds n

o ca

se w

here

wor

kers

wer

e m

ade

wor

se o

ff, a

nd 3

cas

es in

whi

ch w

orke

rs'

cond

itio

ns im

prov

ed.

Hac

hett

e an

d L

uder

s (1

994)

T

his

stud

y an

alyz

es th

e di

ffer

ence

in 1

0 pe

rfor

man

ce

indi

cato

rs o

f 14

4 pr

ivat

e, p

ublic

and

pri

vatiz

ed f

irm

s in

C

hile

dur

ing

the

peri

od f

rom

197

4–19

87.

It f

inds

no

sign

ific

ant d

iffe

renc

es in

beh

avio

r am

ong

publ

ic, p

riva

te a

nd

priv

atiz

ed f

irm

s th

at o

pera

te u

nder

sim

ilar

set

s of

rul

es a

nd r

egul

atio

ns.

Pet

razz

ini a

nd

Cla

rk (

1996

)

Usi

ng I

nter

natio

nal T

elec

omm

unic

atio

ns U

nion

dat

a th

roug

h 19

94, i

t tes

ts w

heth

er d

ereg

ulat

ion

and

priv

atiz

atio

n im

pact

the

leve

l and

gro

wth

of

tele

dens

ity,

pr

ices

, ser

vice

qua

lity

and

em

ploy

men

t. T

he s

ampl

e co

vers

26

dev

elop

ing

coun

trie

s, in

clud

ing

som

e L

atin

Am

eric

an

Der

egul

atio

n an

d pr

ivat

izat

ion

are

both

ass

ocia

ted

wit

h si

gnif

ican

t im

prov

emen

ts in

the

leve

l and

gro

wth

of

tele

dens

ity,

but

hav

e no

con

sist

ent

impa

ct o

n th

e qu

alit

y of

ser

vice

. Der

egul

atio

n is

ass

ocia

ted

wit

h lo

wer

pri

ces

and

incr

ease

d em

ploy

men

t; pr

ivat

izat

ion

has

the

oppo

site

eff

ect.

natio

ns.

Pin

heir

o (1

996)

It

ana

lyze

s th

e pe

rfor

man

ce o

f 50

for

mer

Bra

zili

an S

OE

s be

fore

and

aft

er p

riva

tizat

ion.

It u

ses

data

up

unti

l 199

4.

The

var

iabl

es u

sed

are

net s

ales

, net

pro

fits

, net

ass

ets,

in

vest

men

t, em

ploy

men

t and

inde

bted

ness

.

The

stu

dy c

oncl

udes

that

pri

vati

zati

on h

as im

prov

ed th

e pe

rfor

man

ce o

f th

e fi

rms.

It s

how

s th

at th

e nu

ll hy

poth

esis

of

no c

hang

e in

beh

avio

r is

rej

ecte

d fo

r th

e pr

oduc

tion,

eff

icie

ncy,

pro

fita

bilit

y an

d in

vest

men

t var

iabl

es. I

t fin

ds

a si

gnif

ican

t neg

ativ

e im

pact

on

empl

oym

ent.

Ros

(19

99)

U

ses

ITU

dat

a an

d pa

nel d

ata

regr

essi

ons

to e

xam

ine

the

effe

cts

of p

riva

tizat

ion

and

com

petit

ion

on n

etw

ork

expa

nsio

n an

d ef

fici

ency

. The

stu

dy c

over

s 11

0 co

untr

ies

duri

ng th

e 19

86–1

995

peri

od.

Cou

ntri

es w

ith

at le

ast 5

0 pe

rcen

t of

priv

ate

owne

rshi

p in

the

mai

n te

leco

m

firm

hav

e si

gnif

ican

tly

high

er te

lede

nsit

y le

vels

and

gro

wth

rat

es. B

oth

priv

atiz

atio

n an

d co

mpe

titio

n in

crea

se e

ffic

ienc

y. H

owev

er, o

nly

priv

atiz

atio

n is

pos

itive

ly a

ssoc

iate

d w

ith

netw

ork

expa

nsio

n.

San

chez

and

C

oron

a (1

993)

U

ses

a de

scri

ptiv

e ca

se-s

tudy

app

roac

h to

ana

lyze

the

priv

atiz

atio

n ex

peri

ence

s of

Arg

enti

na, C

hile

, Col

ombi

a an

d M

exic

o. I

t foc

uses

on

the

prep

arat

ory

mea

sure

s ta

ken

prio

r to

pri

vatiz

atio

n; o

n va

luat

ion,

sal

e m

echa

nism

s,

regu

lati

on a

nd s

uper

visi

on, a

nd o

n th

e fi

scal

and

m

acro

econ

omic

impa

ct o

f pr

ivat

izat

ion.

The

aut

hors

fin

d gr

eat d

iffe

renc

es in

the

effe

cts

of p

riva

tiza

tion

in th

e co

untr

ies

cove

red

by th

e st

udy.

The

y co

nclu

de th

at f

irm

s, in

stitu

tions

and

re

gula

tion

s ne

ed s

uffi

cien

t tim

e to

pre

pare

for

the

priv

atiz

atio

n pr

oces

s to

be

succ

essf

ul.

Tru

jillo

, Mar

tin,

Est

ache

, and

C

ampo

s (2

002)

Thi

s st

udy

uses

a s

ampl

e of

21

Lat

in A

mer

ican

cou

ntri

es

cove

ring

fro

m 1

985

to 1

998.

It u

ses

pool

ed a

nd p

anel

dat

a w

ith

fixe

d an

d ra

ndom

eff

ects

to e

xam

ine

the

mac

roec

onom

ic e

ffec

ts o

f pr

ivat

e se

ctor

par

ticip

atio

n in

in

fras

truc

ture

.

The

aut

hors

fin

d th

at p

riva

te s

ecto

r in

volv

emen

t in

util

ities

and

tran

spor

t hav

e m

inim

al p

ositi

ve e

ffec

ts o

n G

DP

. The

re is

cro

wdi

ng o

ut o

f pr

ivat

e in

vest

men

t, pr

ivat

e pa

rtic

ipat

ion

redu

ces

recu

rren

t exp

endi

ture

s ex

cept

in

tran

spor

t whe

re it

has

the

oppo

site

eff

ect.

The

net

eff

ect o

n th

e pu

blic

sec

tor

acco

unt i

s un

cert

ain.

Wal

lste

n (2

001)

A

naly

ses

the

effe

ct o

f te

leco

mm

unic

atio

n re

form

s. I

t ex

plor

es th

e im

pact

of

priv

atiz

atio

n, c

ompe

titio

n, a

nd

regu

lati

on o

n te

leco

m f

irm

s' p

erfo

rman

ce. T

his

stud

y co

vers

30

Afr

ican

and

Lat

in A

mer

ican

cou

ntri

es d

urin

g th

e 19

84-1

997

peri

od.

It in

dica

tes

that

com

petit

ion

is s

igni

fica

ntly

ass

ocia

ted

wit

h in

crea

ses

in p

er

capi

ta a

cces

s to

tele

com

mun

icat

ion

serv

ices

and

wit

h de

crea

ses

in it

s co

sts.

P

riva

tizat

ion

is h

elpf

ul o

nly

if c

oupl

ed w

ith

effe

ctiv

e, in

depe

nden

t reg

ulat

ion.

T

he s

tudy

con

clud

es th

at c

ompe

titio

n co

mbi

ned

wit

h pr

ivat

izat

ion

is b

est.

Pri

vatiz

ing

a m

onop

oly

wit

hout

reg

ulat

ory

refo

rms

shou

ld b

e av

oide

d.

Tab

le 4

. Sum

mar

y of

Em

piri

cal S

tudi

es o

f P

riva

tiza

tion

in t

he T

rans

itio

n E

cono

mie

s of

Cen

tral

and

Eas

tern

Eur

ope

Stud

y Sa

mpl

e de

scri

ptio

n, s

tudy

per

iod,

and

met

hodo

logy

Su

mm

ary

of e

mpi

rica

l fin

ding

s an

d co

nclu

sion

s

Poh

l, A

nder

son,

C

laes

sens

, and

D

jank

ov (

1997

)

Com

pare

s th

e ex

tent

of

rest

ruct

urin

g ac

hiev

ed b

y ov

er 6

,300

pr

ivat

e an

d st

ate-

owne

d fi

rms

in s

even

eas

tern

Eur

opea

n co

untr

ies

duri

ng 1

992-

1995

. Use

s si

x m

easu

res

to e

xam

ine

whi

ch r

estr

uctu

ring

str

ateg

ies

impr

ove

perf

orm

ance

the

mos

t.

Pri

vatiz

atio

n dr

amat

ical

ly in

crea

ses

rest

ruct

urin

g li

keli

hood

and

su

cces

s. F

irm

pri

vatiz

ed f

or 4

yea

rs w

ill in

crea

se p

rodu

ctiv

ity

3-5

tim

es

mor

e th

an a

sim

ilar

SOE

. Litt

le d

iffe

renc

e in

per

form

ance

bas

ed o

n m

etho

d of

pri

vatiz

atio

n, b

ut o

wne

rshi

p &

fin

anci

ng e

ffec

ts im

pact

re

stru

ctur

ing.

Fryd

man

, Gra

y,

Hes

sel a

nd

Rap

aczy

nski

(1

999)

Com

pare

s th

e pe

rfor

man

ce o

f pr

ivat

ized

and

sta

te-o

wne

d fi

rms

in th

e tr

ansi

tion

eco

nom

ies

of C

entr

al E

urop

e, a

nd a

sks

the

ques

tion

“whe

n do

es p

riva

tizat

ion

wor

k?”

Exa

min

es in

flue

nce

of

owne

rshi

p st

ruct

ure

on p

erfo

rman

ce u

sing

a s

ampl

e of

90

stat

e-ow

ned

and

128

priv

atiz

ed c

ompa

nies

in th

e C

zech

Rep

ubli

c,

Hun

gary

and

Pol

and.

Em

ploy

pan

el d

ata

regr

essi

on m

etho

ds to

is

olat

e ow

ners

hip

effe

cts.

Pri

vatiz

atio

n “w

orks

,” b

ut o

nly

whe

n fi

rm is

con

trol

led

by o

utsi

de

owne

rs (

othe

r th

an m

anag

ers

or e

mpl

oyee

s). P

riva

tizat

ion

adds

ove

r 18

pe

rcen

tage

poi

nts

to th

e an

nual

gro

wth

rat

e of

a f

irm

sol

d to

a d

omes

tic

fina

ncia

l com

pany

, and

12

perc

enta

ge p

oint

s w

hen

sold

to a

for

eign

bu

yer.

Pri

vatiz

atio

n to

an

outs

ide

owne

r al

so a

dds

abou

t 9 p

erce

ntag

e po

ints

to p

rodu

ctiv

ity

grow

th. F

urth

er, g

ain

does

not

com

e at

the

expe

nse

of h

ighe

r un

empl

oym

ent;

insi

der

cont

rolle

d fi

rms

are

muc

h le

ss li

kely

to r

estr

uctu

re, b

ut o

utsi

der-

cont

rolle

d fi

rms

grow

fas

ter.

Sh

ows

the

impo

rtan

ce o

f en

trep

rene

ursh

ip in

rev

ivin

g sa

les

grow

th.

Ber

g,

Bor

ensz

tein

, Sa

hay

and

Zet

telm

eyer

(1

999)

Usi

ng m

acro

econ

omic

dat

a fr

om 2

6 tr

ansi

tion

coun

trie

s fo

r 19

90-1

996,

exa

min

es r

elat

ive

role

s of

mac

roec

onom

ic v

aria

bles

, st

ruct

ural

pol

icie

s, a

nd in

itial

con

ditio

ns in

exp

lain

ing

the

larg

e ob

serv

ed d

iffe

renc

es in

out

put p

erfo

rman

ce a

fter

tran

sitio

n be

gan.

Res

ults

poi

nt to

the

pree

min

ence

of

stru

ctur

al r

efor

ms

over

bot

h in

itia

l co

nditi

ons

and

mac

roec

onom

ic v

aria

bles

in e

xpla

inin

g cr

oss-

coun

try

diff

eren

ces

in p

erfo

rman

ce a

nd th

e ti

min

g of

rec

over

y fr

om th

e sh

arp

rece

ssio

n th

at h

it ev

ery

tran

siti

on e

cono

my

in th

e ea

rly

1990

s.

Fryd

man

, Gra

y,

Hes

sel a

nd

Rap

aczy

nski

(2

000)

Exa

min

es w

heth

er th

e im

posi

tion

of

hard

bud

get c

onst

rain

ts is

al

one

suff

icie

nt to

impr

ove

corp

orat

e pe

rfor

man

ce in

the

Cze

ch

Rep

ublic

, Hun

gary

and

Pol

and.

Em

ploy

s a

sam

ple

of 2

16 f

irm

s,

split

bet

wee

n st

ate-

owne

d (3

1%),

pri

vatiz

ed (

43%

), a

nd p

riva

te

(26%

) fi

rms.

Fin

ds p

riva

tiza

tion

alo

ne a

dds

near

ly 1

0 pe

rcen

tage

poi

nts

to th

e re

venu

e gr

owth

of

a fi

rm s

old

to o

utsi

de o

wne

rs. M

ost i

mpo

rtan

t, fi

nds

that

the

thre

at o

f ha

rd b

udge

t con

stra

ints

for

poo

rly

perf

orm

ing

SOE

s fa

lters

, sin

ce g

over

nmen

ts a

re u

nwill

ing

to a

llow

thes

e fi

rms

to f

ail.

The

br

unt o

f S

OE

s’ lo

wer

cre

ditw

orth

ines

s fa

lls

on s

tate

cre

dito

rs.

Fryd

man

, Hes

sel

and

Rap

aczy

nski

(2

000)

Exa

min

es w

heth

er p

riva

tized

Cen

tral

Eur

opea

n fi

rms

cont

rolle

d by

out

side

inve

stor

s ar

e m

ore

entr

epre

neur

ial—

in te

rms

of a

bilit

y to

incr

ease

rev

enue

s—th

an f

irm

s co

ntro

lled

by

insi

ders

or

the

stat

e. S

tudy

em

ploy

s su

rvey

dat

a fr

om a

sam

ple

of 5

06

man

ufac

turi

ng f

irm

s in

the

Cze

ch R

epub

lic,

Hun

gary

and

P

olan

d.

Doc

umen

ts th

at a

ll s

tate

and

pri

vati

zed

firm

s en

gage

in s

imil

ar ty

pes

of

rest

ruct

urin

g, b

ut th

at p

rodu

ct r

estr

uctu

ring

by

firm

s ow

ned

by o

utsi

de

inve

stor

s is

sig

nifi

cant

ly m

ore

effe

ctiv

e, in

term

s of

rev

enue

gen

erat

ion,

th

an b

y fi

rms

wit

h ot

her

type

s of

ow

ners

hip.

Con

clud

es th

e m

ore

entr

epre

neur

ial b

ehav

ior

of o

utsi

der-

owne

d fi

rms

is d

ue to

ince

ntiv

e ef

fect

s, r

athe

r th

an h

uman

cap

ital

eff

ects

, of

priv

atiz

atio

n—sp

ecif

ical

ly

grea

ter

read

ines

s to

take

ris

ks.

Zin

nes,

Eila

t and

Sa

chs

(200

1)

Em

ploy

s a

uniq

ue p

anel

dat

aset

of

mac

roec

onom

ic, o

wne

rshi

p st

ruct

ure,

and

indi

cato

r va

riab

les

mea

suri

ng th

e de

pth

and

brea

dth

of r

efor

m a

nd p

riva

tizat

ion

for

24 tr

ansi

tion

coun

trie

s to

de

term

ine

whe

ther

“ch

ange

of

owne

rshi

p” (

priv

atiz

atio

n) a

lone

is

enou

gh to

pro

mot

e im

prov

ed e

cono

mic

per

form

ance

ove

r th

e pe

riod

199

0-98

, or

whe

ther

“de

ep p

riva

tizat

ion”

invo

lvin

g im

prov

ed c

orpo

rate

gov

erna

nce,

enh

ance

d pr

uden

tial

reg

ulat

ion

and

hard

enin

g of

bud

get c

onst

rain

ts is

als

o re

quir

ed. D

evel

op a

n O

BC

A in

dica

tor

vari

able

for

eac

h co

untr

y m

easu

ring

the

brea

dth

and

dept

h of

ref

orm

s, a

nd in

clud

es th

is v

aria

ble

in r

egre

ssio

ns.

Use

fou

r m

easu

res

of e

cono

my-

wid

e m

acro

econ

omic

pe

rfor

man

ce a

s de

pend

ent v

aria

bles

.

Reg

ardl

ess

of p

erfo

rman

ce m

easu

re e

mpl

oyed

, fin

ds th

at e

cono

mic

pe

rfor

man

ce g

ains

com

e on

ly f

rom

dee

p pr

ivat

izat

ion—

mea

ning

that

ch

ange

of

title

ref

orm

s on

ly y

ield

eco

nom

ic g

ains

aft

er k

ey in

stit

utio

nal

and

agen

cy-r

elat

ed r

efor

ms

have

exc

eede

d ce

rtai

n th

resh

old

leve

ls. B

y th

emse

lves

, cha

nge

of ti

tle r

efor

ms

neve

r ha

ve a

sig

nifi

cant

impa

ct o

n pe

rfor

man

ce, b

ut th

e hi

gher

the

OB

CA

leve

l a c

ount

ry h

as, t

he m

ore

posi

tive

is th

e im

pact

of

an in

crea

se in

cha

nge

of ti

tle

on e

cono

mic

pe

rfor

man

ce. W

hile

ow

ners

hip

mat

ters

, ins

titut

ions

mat

ter

just

as

muc

h.

Car

lin, F

ries

, S

chaf

fer

and

Seab

righ

t (20

01)

Use

s da

ta f

rom

a 1

999

surv

ey o

f 33

05 f

irm

s in

25

tran

siti

on

coun

trie

s to

exa

min

e th

e fa

ctor

s th

at p

rom

ote

rest

ruct

urin

g by

fi

rms

and

enha

nce

subs

eque

nt p

erfo

rman

ce—

as m

easu

red

by

grow

th in

sal

es a

nd in

sal

es p

er e

mpl

oyee

ove

r a

3-ye

ar p

erio

d.

Surv

ey in

clud

es a

bout

125

com

pani

es f

rom

eac

h of

the

25

coun

trie

s, w

ith

larg

er s

ampl

es f

rom

Pol

and

and

Ukr

aine

(20

0+

firm

s) a

nd R

ussi

a (5

00+

fir

ms)

. Jus

t ove

r on

e-ha

lf w

ere

new

ly-

esta

blis

hed

firm

s, 8

% w

ere

priv

atiz

ed to

insi

ders

, 22%

pri

vatiz

ed

to o

utsi

ders

and

16%

rem

aine

d st

ate-

owne

d.

Find

s th

at c

ompe

titio

n ha

s an

impo

rtan

t and

non

-mon

oton

ic e

ffec

t on

the

grow

th o

f sa

les

and

labo

r pr

oduc

tivit

y, w

ith

perf

orm

ance

impr

ovin

g m

ore

for

firm

s fa

cing

1-3

com

peti

tors

than

for

mon

opol

ists

(on

e-fo

urth

of

SO

Es

face

no

com

peti

tion

for

thei

r m

ain

prod

ucts

in th

eir

dom

esti

c m

arke

ts)

or f

irm

s fa

cing

man

y co

mpe

titor

s. C

ontr

olli

ng f

or o

ther

fa

ctor

s, f

ind

no s

igni

fica

nt r

elat

ions

hip

betw

een

priv

atiz

atio

n an

d pe

rfor

man

ce. N

ewly

cre

ated

fir

ms

gene

rall

y ou

t-pe

rfor

m a

ll o

ther

ca

tego

ries

. Old

fir

ms

(pri

vati

zed

and

SO

Es)

are

muc

h m

ore

like

ly to

cut

em

ploy

men

t tha

n ne

w e

ntra

nts,

but

aut

hors

fin

d so

me

evid

ence

that

pr

ivat

e fi

rms

(new

ent

rant

s an

d pr

ivat

ized

) ar

e m

ore

like

ly to

eng

age

in

new

pro

duct

dev

elop

men

t. O

vera

ll, f

ind

com

peti

tion

to b

e a

mor

e po

wer

ful i

nflu

ence

on

perf

orm

ance

than

ow

ners

hip,

per

se.

Ang

eluc

ci,

Est

rin,

Kon

ings

an

d Z

olki

ewsk

i (2

001)

Ana

lyze

s th

e ef

fect

of

owne

rshi

p an

d co

mpe

titi

on o

n fi

rm

perf

orm

ance

, mea

sure

d by

tota

l fac

tor

prod

uctiv

ity

(TFP

), in

th

ree

tran

siti

on e

cono

mie

s fo

r ye

ars

1994

-199

8. U

ses

repo

rted

co

mpa

ny a

ccou

nts

data

for

199

4 an

d 19

98 f

or 1

7,57

0 P

olis

h, a

nd

for

1997

-98

for

1,50

0 B

ulga

rian

and

2,0

47 R

oman

ian

com

pani

es.

Tes

ts w

heth

er p

riva

te f

orei

gn-o

wne

d fi

rms

outp

erfo

rm p

riva

te

dom

esti

c co

mpa

nies

, and

whe

ther

thes

e bo

th o

utpe

rfor

m S

OE

s.

Fin

ds th

at (

1) c

ompe

titi

ve p

ress

ure

(mea

sure

d by

mar

ket s

truc

ture

) is

as

soci

ated

wit

h hi

gher

pro

duct

ivit

y in

all

thre

e co

untr

ies;

(2)

incr

ease

d im

port

pen

etra

tion

is p

ositi

vely

ass

ocia

ted

wit

h pe

rfor

man

ce in

Pol

and,

bu

t neg

ativ

ely

in B

ulga

ria

and

Rom

ania

; (3)

com

petit

ive

pres

sure

has

st

rong

er e

ffec

ts in

pri

vate

fir

ms

and

priv

atiz

atio

n is

ass

ocia

ted

wit

h hi

gher

per

form

ance

in m

ore

com

peti

tive

sec

tors

; (4)

pri

vati

zati

on is

as

soci

ated

wit

h be

tter

fir

m p

erfo

rman

ce a

nd p

riva

tize

d fi

rms

out-

perf

orm

SO

Es

in a

ll th

ree

coun

trie

s. O

vera

ll, f

ind

ther

e ar

e co

mpl

emen

tari

ties

betw

een

com

petit

ive

pres

sure

and

ow

ners

hip.

Cla

esse

ns a

nd

Exa

min

es c

hang

es in

the

perf

orm

ance

of

6,35

4 pr

ivat

ized

and

Fi

nds

that

pri

vatiz

atio

n is

ass

ocia

ted

wit

h si

gnif

ican

tly

incr

ease

d sa

les

Dja

nkov

(20

02)

stat

e-ow

ned

firm

s in

sev

en tr

ansi

tion

eco

nom

ies

over

the

1991

-95

per

iod,

and

test

whe

ther

pri

vatiz

atio

n im

prov

es p

erfo

rman

ce

(as

mea

sure

d by

incr

ease

d sa

les

and

labo

r pr

oduc

tivi

ty).

Sam

ple

incl

udes

all

man

ufac

turi

ng f

irm

s th

at a

re r

egis

tere

d as

sta

te-

owne

d in

199

1 an

d ha

ve m

ore

than

25

empl

oyee

s. H

ave

full

bala

nce

shee

t and

inco

me

stat

emen

ts f

or 1

992-

95, a

nd c

onst

ruct

pa

nel d

ata

show

ing

evol

utio

n of

ow

ners

hip

over

per

iod.

and

prod

uctiv

ity

grow

th a

nd, t

o a

less

er e

xten

t, w

ith f

ewer

job

loss

es.

In s

ix o

f se

ven

coun

trie

s, p

riva

tized

fir

ms

show

hig

her

sale

s gr

owth

or

smal

ler

decl

ines

in s

ales

than

SO

Es,

and

pri

vati

zed

firm

s re

duce

thei

r sa

les

forc

es b

y an

ave

rage

6.1

1% v

ersu

s 7.

42%

for

SO

Es

(sig

nifi

cant

di

ffer

ence

). P

ositi

ve e

ffec

t of

priv

atiz

atio

n is

str

onge

r in

eco

nom

ic

mag

nitu

de a

nd s

tati

stic

al s

igni

fica

nce

as th

e ti

me

elap

sed

sinc

e pr

ivat

izat

ion

incr

ease

s.

Cla

esse

ns,

Dja

nkov

, and

P

ohl (

1997

)

Exa

min

e de

term

inan

ts o

f pe

rfor

man

ce im

prov

emen

ts f

or s

ampl

e of

706

Cze

ch f

irm

s pr

ivat

ized

dur

ing

1992

-199

5. U

sing

Tob

ins-

Q,

test

s w

heth

er c

once

ntra

ted

owne

rshi

p st

ruct

ure

or p

rese

nce

of

outs

ide

mon

itor

(ban

k or

inve

stm

ent f

und)

impr

oves

Q m

ore

than

di

sper

sed

owne

rshi

p.

Doc

umen

t tha

t pri

vati

zed

firm

s do

pro

sper

, pri

mar

ily

beca

use

of th

e co

ncen

trat

ed o

wne

rshi

p st

ruct

ure

that

res

ults

. Fin

d th

e m

ore

conc

entr

ated

the

post

-pri

vati

zati

on o

wne

rshi

p st

ruct

ure

the

high

er is

th

e fi

rm’s

pro

fita

bili

ty a

nd m

arke

t val

uatio

n. L

arge

sta

kes

owne

d by

ba

nk-s

pons

ored

fun

ds a

nd s

trat

egic

inve

stor

s ar

e pa

rtic

ular

ly v

alue

-en

hanc

ing

Wei

ss a

nd

Nik

itin

(199

8)

Ana

lyze

the

effe

cts

of o

wne

rshi

p by

inve

stm

ent f

unds

on

the

perf

orm

ance

of

125

priv

atiz

ed C

zech

fir

ms

duri

ng th

e pe

riod

19

93-1

995.

Ass

ess

thes

e ef

fect

s by

mea

suri

ng th

e re

latio

nshi

p be

twee

n ch

ange

s in

per

form

ance

and

cha

nges

in th

e co

mpo

siti

on

of o

wne

rshi

p at

the

star

t of

priv

atiz

atio

n. U

se r

obus

t est

imat

ion

tech

niqu

es, i

n ad

ditio

n to

OL

S, s

ince

dat

a st

rong

ly r

ejec

t no

rmal

ity.

Find

that

ow

ners

hip

conc

entr

atio

n an

d co

mpo

sitio

n jo

intl

y af

fect

pe

rfor

man

ce o

f pr

ivat

ized

fir

ms.

Con

cent

ratio

n of

ow

ners

hip

in th

e ha

nds

of a

larg

e sh

areh

olde

r, o

ther

than

an

inve

stm

ent f

und

or

com

pany

, is

asso

ciat

ed w

ith

sign

ific

ant p

erfo

rman

ce im

prov

emen

ts

(for

all

mea

sure

s of

per

form

ance

). C

once

ntra

ted

owne

rshi

p by

fun

ds

does

not

impr

ove

firm

per

form

ance

. Pre

lim

inar

y po

st-1

996

data

su

gges

ts th

at c

hang

es in

inve

stm

ent f

und

legi

slat

ion

may

impr

ove

thei

r pe

rfor

man

ce.

Cla

esse

ns a

nd

Dja

nkov

(19

99a)

St

udy

the

effe

ct o

f m

anag

emen

t tur

nove

r on

cha

nges

in f

inan

cial

an

d op

erat

ing

perf

orm

ance

of

706

priv

atiz

ed C

zech

fir

ms

over

the

peri

od 1

993-

1997

. Exa

min

e ch

ange

s in

pro

fita

bili

ty a

nd la

bor

prod

uctiv

ity.

Find

that

the

appo

intm

ent o

f ne

w m

anag

ers

is a

ssoc

iate

d w

ith

sign

ific

ant i

mpr

ovem

ents

in p

rofi

t mar

gins

and

labo

r pr

oduc

tivit

y,

part

icul

arly

if th

e m

anag

ers

are

sele

cted

by

priv

ate

owne

rs. N

ew

man

ager

s ap

poin

ted

by th

e N

atio

nal P

rope

rty

Fund

als

o im

prov

e pe

rfor

man

ce, t

houg

h no

t by

as m

uch.

Cla

esse

ns a

nd

Dja

nkov

(19

99b)

E

xam

ine

the

rela

tion

ship

bet

wee

n ow

ners

hip

conc

entr

atio

n an

d co

rpor

ate

perf

orm

ance

for

706

pri

vati

zed

Cze

ch f

irm

s du

ring

the

peri

od 1

992-

1997

. Use

pro

fita

bili

ty a

nd la

bor

prod

ucti

vity

as

indi

cato

rs o

f co

rpor

ate

perf

orm

ance

.

Fin

ds th

at c

once

ntra

ted

owne

rshi

p is

ass

ocia

ted

wit

h hi

gher

pr

ofita

bilit

y an

d la

bor

prod

uctiv

ity.

Als

o fi

nd th

at f

orei

gn s

trat

egic

ow

ners

and

non

-ban

k-sp

onso

red

inve

stm

ent f

unds

impr

ove

perf

orm

ance

mor

e th

an b

ank-

spon

sore

d fu

nds.

Liz

al, S

inge

r,

Svej

nar

(200

0)

Exa

min

es th

e pe

rfor

man

ce e

ffec

ts o

f th

e w

ave

of b

reak

-ups

of

Cze

chsl

ovak

SO

Es

on th

e su

bseq

uent

per

form

ance

of

the

mas

ter

firm

and

the

spin

off

s. T

he r

egre

ssio

ns u

se d

ata

for

373

firm

s in

19

91 a

nd 2

62 f

irm

s in

199

2.

The

re w

as a

n im

med

iate

(in

199

1) p

osit

ive

effe

ct o

n th

e ef

fici

ency

and

pr

ofita

bilit

y of

sm

all a

nd m

ediu

m s

ize

firm

s (b

oth

mas

ter

and

spin

-of

fs)

and

nega

tive

for

the

larg

er f

irm

s. T

he r

esul

ts f

or 1

992

are

sim

ilar

but n

ot s

tati

stic

ally

sig

nifi

cant

.

Har

per

(200

1)

Exa

min

es th

e ef

fect

s of

pri

vati

zati

on o

n th

e fi

nanc

ial a

nd

oper

atin

g pe

rfor

man

ce o

f 17

4 fi

rms

priv

atiz

ed in

the

firs

t—an

d 38

0 fi

rms

dive

sted

in th

e se

cond

—w

ave

of th

e C

zech

Rep

ubli

c’s

vouc

her

priv

atiz

atio

ns o

f 19

92 a

nd 1

994.

Com

pare

s re

sult

s fo

r pr

ivat

ized

fir

ms

to th

ose

whi

ch r

emai

n st

ate-

owne

d. E

mpl

oys

Meg

gins

on, N

ash

and

van

Ran

denb

orgh

met

hodo

logy

and

va

riab

les

to m

easu

re c

hang

es.

Find

s th

at th

e fi

rst w

ave

of p

riva

tizat

ion

yiel

ds d

isap

poin

ting

resu

lts.

Rea

l sal

es, p

rofi

tabi

lity,

eff

icie

ncy

and

empl

oym

ent a

ll de

clin

ed

dram

atic

ally

(an

d si

gnif

ican

tly)

. How

ever

, sec

ond

wav

e fi

rms

expe

rien

ce s

igni

fica

nt in

crea

ses

in e

ffic

ienc

y an

d pr

ofita

bilit

y an

d th

e de

clin

e in

em

ploy

men

t—th

ough

stil

l sig

nifi

cant

—is

muc

h le

ss d

rast

ic

than

aft

er f

irst

wav

e (-

17%

vs

-41%

).

Liz

al a

nd

Svej

nar

(200

1)

Exa

min

e st

rate

gic

rest

ruct

urin

g an

d ne

w in

vest

men

t per

form

ance

of

4,0

00 C

zech

com

pani

es d

urin

g 19

92-1

998.

Dat

aset

incl

udes

ov

er 8

3,00

0 qu

arte

rly

obse

rvat

ions

. Dev

elop

and

test

a d

ynam

ic

mod

el o

f re

stru

ctur

ing

and

inve

stm

ent,

allo

win

g th

em to

exa

min

e se

para

ble

impa

ct o

f pr

ivat

e ve

rsus

pub

lic a

nd d

omes

tic v

ersu

s fo

reig

n ow

ners

hip

on r

estr

uctu

ring

, as

wel

l as

the

impo

rtan

ce o

f ac

cess

to c

redi

t and

a s

oft b

udge

t con

stra

int o

n fi

rm in

vest

men

t

Find

that

(1)

for

eign

ow

ned

com

pani

es in

vest

the

mos

t and

(d

omes

tica

lly

owne

d) c

oope

rativ

es th

e le

ast;

(2)

priv

ate

firm

s do

not

in

vest

mor

e th

an s

tate

-ow

ned

firm

s; (

30 c

oope

rativ

es a

nd s

mal

l fir

ms

are

cred

it r

atio

ned;

and

(4)

SO

Es

oper

ate

unde

r a

soft

bud

get

cons

trai

nt

Fidr

muc

and

Fi

drm

uc (

2001

) U

se a

sam

ple

of 1

78 C

zech

fir

ms

priv

atiz

ed d

urin

g fi

rst w

ave

of

vouc

her

priv

atiz

atio

n (1

992-

1994

) to

test

whe

ther

ow

ners

hip

chan

ge p

rom

oted

incr

ease

d ef

fici

ency

and

pro

fita

bilit

y. U

se M

NR

pr

e ve

rsus

pos

t-pr

ivat

izat

ion

com

pari

son

tech

niqu

es to

test

for

pe

rfor

man

ce c

hang

es

Find

that

eff

icie

ncy

and

prof

itab

ility

dec

lined

aft

er p

riva

tizat

ion,

and

th

at c

hang

es in

fir

ms’

ope

ratio

ns d

o no

t var

y si

gnif

ican

tly

by s

ize

or

owne

rshi

p—bu

t do

vary

by

indu

stry

type

, wit

h no

n-m

anuf

actu

ring

fi

rms

expe

rien

cing

mor

e po

siti

ve (

or le

ss n

egat

ive)

cha

nges

.

Liz

al a

nd

Svej

nar

(200

2)

Use

pan

el o

f ov

er 8

3,50

0 qu

arte

rly

obse

rvat

ions

fro

m 4

,000

m

ediu

m a

nd la

rge

Cze

ch c

ompa

nies

ove

r th

e 19

92-1

998

peri

od to

as

sess

the

effe

cts

of m

ass

priv

atiz

atio

n on

fir

m p

erfo

rman

ce.

Find

that

for

eign

ow

ners

una

mbi

guou

sly

impr

ove

long

-ter

m

perf

orm

ance

(m

easu

red

seve

ral w

ays,

incl

udin

g pr

ofits

and

in

vest

men

t) o

f pr

ivat

ized

com

pani

es, b

ut d

omes

tic o

wne

rs d

o no

t.

Koc

enda

and

Sv

ejna

r (2

002)

A

naly

ze th

e ef

fect

of

owne

rshi

p on

pos

t-pr

ivat

izat

ion

perf

orm

ance

us

ing

a da

tase

t of

2,52

9-2,

949

obse

rvat

ions

on

an u

nbal

ance

d pa

nel o

f 1,

371-

1,54

0 m

ediu

m a

nd la

rge

Cze

ch f

irm

s. d

efin

e si

x ca

tego

ries

of

owne

rs a

nd e

xam

ine

impa

ct o

f ea

ch.

Fin

d th

at c

once

ntra

ted

fore

ign

owne

rshi

p im

prov

es e

cono

mic

pe

rfor

man

ce, b

ut d

omes

tic p

riva

te o

wne

rshi

p do

es n

ot, r

elat

ive

to s

tate

fi

rms.

For

eign

-ow

ned

firm

s en

gage

in s

trat

egic

res

truc

turi

ng b

y in

crea

sing

sal

es a

nd p

rofi

ts, w

hile

dom

estic

fir

ms

redu

ce s

ales

and

la

bor

cost

s w

itho

ut in

crea

sing

pro

fits

. Ow

ners

hip

conc

entr

atio

n ge

nera

lly

asso

ciat

ed w

ith

impr

oved

per

form

ance

. Ove

rall

, con

clud

e th

at s

tate

ow

ners

hip

play

s a

muc

h m

ore

econ

omic

ally

and

soc

iall

y be

nefi

cial

rol

e in

this

tran

sitio

n ec

onom

y th

an th

eory

wou

ld p

redi

ct.

Cul

l, M

ates

ova

and

Shir

ley

(200

2)

Exa

min

e th

e in

cent

ive

of m

anag

ers

of v

ouch

er-p

riva

tize

d C

zech

co

mpa

nies

to “

tunn

el”

(str

ip a

sset

s ou

t of

com

pani

es a

t the

ex

pens

e of

out

side

sha

reho

lder

s) a

nd “

loot

” th

eir

com

pani

es.

Loo

ting

occ

urs

whe

n fi

rms

face

a s

oft b

udge

t con

stra

int a

nd

Con

trol

ling

for

siz

e, in

dust

ry, c

apita

l int

ensi

ty a

nd in

itial

leve

rage

, fin

d th

at v

ouch

er-p

riva

tize

d JS

Cs

perf

orm

sig

nifi

cant

ly w

orse

than

fir

ms

wit

h co

ncen

trat

ed o

wne

rshi

p th

at a

re p

urch

ased

for

cas

h. I

nves

tmen

t fu

nd-c

ontr

olle

d JS

Cs

unde

r-pe

rfor

m a

ll ot

her

firm

s, in

clud

ing

othe

r

man

ager

s ar

e ab

le to

bor

row

hea

vily

, ext

ract

fun

ds f

rom

the

firm

, an

d th

en d

efau

lt on

the

debt

with

out p

enal

ty.

Em

ploy

a d

atas

et

wit

h 1,

017

obse

rvat

ions

fro

m 3

92 c

ompa

nies

spr

ead

near

ly e

venl

y be

twee

n 19

94-9

6. H

alf

of th

e fi

rms

are

vouc

her-

priv

atiz

ed jo

int

stoc

k co

mpa

nies

(JS

Cs)

whi

le h

alf

are

lim

ited

liabi

lity

com

pani

es

(LL

Cs)

.

JSC

s. F

und-

cont

rolle

d JS

Cs

also

take

on

liabi

litie

s at

a m

uch

fast

er

rate

than

oth

er f

irm

s, in

dica

ting

they

are

ope

rati

ng u

nder

a s

oft b

udge

t co

nstr

aint

. Tho

ugh

not a

ble

to m

easu

re d

irec

tly,

evi

denc

e in

dire

ctly

sh

ows

that

loot

ing

is a

wid

espr

ead

occu

rren

ce f

or m

any

JSC

s.

Dyc

k (1

997)

D

evel

ops

and

test

s an

adv

erse

sel

ectio

n m

odel

to e

xpla

in th

e T

reuh

and’

s ro

le in

res

truc

turi

ng a

nd p

riva

tizin

g ea

ster

n G

erm

any’

s st

ate-

owne

d fi

rms.

In

less

than

fiv

e ye

ars,

the

Tre

uhan

d pr

ivat

ized

mor

e th

an 1

3,80

0 fi

rms

and

part

s of

fir

ms

and,

uni

quel

y, h

ad th

e re

sour

ces

to p

ay f

or r

estr

uctu

ring

itse

lf—

but a

lmos

t nev

er c

hose

to d

o so

. Ins

tead

, it e

mph

asiz

ed s

peed

and

sa

les

to e

xist

ing

wes

tern

fir

ms

over

giv

eaw

ays

and

sale

s to

cap

ital

fund

s. P

aper

rat

iona

lizes

Tre

uhan

d’s

appr

oach

.

Doc

umen

ts th

at p

riva

tize

d ea

st G

erm

an f

irm

s ar

e m

uch

mor

e li

kely

to

tran

sfer

wes

tern

(us

uall

y G

erm

an)

man

ager

s in

to k

ey p

osit

ions

than

ar

e co

mpa

nies

that

rem

ain

stat

e-ow

ned.

Als

o fi

nds

that

Tre

uhan

d em

phas

izes

sal

es o

pen

to a

ll bu

yers

rat

her

than

fav

orin

g ea

ster

n G

erm

ans.

Pri

ncip

al m

essa

ge: p

riva

tizat

ion

prog

ram

s m

ust c

aref

ully

co

nsid

er w

hen

and

how

to a

ffec

t man

ager

ial r

epla

cem

ent i

n pr

ivat

ized

co

mpa

nies

. Pla

ns o

pen

to w

este

rn b

uyer

s, a

nd w

hich

all

ow

man

agem

ent c

hang

e, a

re m

ost l

ikel

y to

impr

ove

firm

per

form

ance

.

Gle

nner

ster

(2

003)

U

sing

a p

anel

dat

aset

on

470

form

erly

sta

te-o

wne

d fi

rms

in th

e fo

rmer

Yug

osla

v R

epub

lic o

f M

aced

onia

(FS

RM

) fo

r 19

96-1

999,

ex

amin

es w

heth

er p

riva

tizat

ion

incr

ease

s pr

ofita

bilit

y of

div

este

d co

mpa

nies

. Use

s a

fixe

d ef

fect

s pa

nel d

ata

regr

essi

on to

add

ress

se

lect

ion

bias

in b

oth

the

tim

ing

and

met

hod

of p

riva

tizat

ion.

Find

s w

eak

but s

igni

fica

nt e

vide

nce

that

pri

vatiz

atio

n ca

n yi

eld

bene

fits

eve

n w

ith

pred

omin

antl

y in

side

r sa

les

and

in a

n en

viro

nmen

t of

wea

k co

rpor

ate

gove

rnan

ce. O

n av

erag

e, p

riva

tiza

tion

lead

s to

a

30%

incr

ease

in r

even

ues

and

cost

s, a

16%

incr

ease

in th

e nu

mbe

r of

w

orke

rs e

mpl

oyed

, and

a $

1,20

0 in

crea

se in

pro

fits

per

wor

ker.

Fir

ms

sold

to o

utsi

ders

and

thos

e w

ith

mor

e co

ncen

trat

ed o

wne

rshi

p ex

pand

m

ore

than

oth

er, s

imila

r fi

rms

afte

r pr

ivat

izat

ion.

Em

ploy

ee b

uy-o

uts

perf

orm

rel

ativ

ely

poor

ly. A

lso

find

that

lack

of

acce

ss to

cap

ital

is a

n im

port

ant r

easo

n w

hy in

side

r pr

ivat

izat

ions

per

form

poo

rly,

sin

ce

thos

e fi

rms

whe

re n

ew o

wne

rs b

ring

in n

ew c

apit

al s

ee p

arti

cula

rly

high

gro

wth

rat

es a

fter

pri

vati

zatio

n.

Gro

sfel

d an

d T

ress

el (

2002

) E

xam

ine

whe

ther

com

peti

tion

and

cor

pora

te g

over

nanc

e ar

e su

bsti

tute

s or

com

plem

ents

wit

h re

spec

t to

prom

otin

g pe

rfor

man

ce im

prov

emen

ts in

Pol

and’

s tr

ansi

tion.

Use

the

avai

labl

e da

ta f

or a

ll 20

0 no

n-fi

nanc

ial f

irm

s li

sted

on

the

War

saw

St

ock

Exc

hang

e fr

om 1

991-

1998

. Fir

st s

tudy

the

sepa

rate

eff

ects

of

com

petit

ion

and

owne

rshi

p co

ncen

trat

ion

on p

rodu

ctiv

ity

grow

th a

t the

fir

m le

vel,

then

exa

min

e th

eir

inte

ract

ion.

Find

that

pro

duct

mar

ket c

ompe

titio

n ha

s a

posi

tive

and

sign

ific

ant

impa

ct o

n pe

rfor

man

ce. T

he e

ffec

t of

owne

rshi

p co

ncen

trat

ion,

whi

ch

is q

uite

hig

h in

Pol

and,

turn

s ou

t to

be U

-sha

ped.

Fir

ms

wit

h di

sper

sed

owne

rshi

p an

d th

ose

whe

re o

ne s

hare

hold

er o

wns

mor

e th

an 5

0% o

f vo

ting

shar

es h

ave

high

er p

rodu

ctiv

ity

grow

th th

an th

ose

wit

h in

term

edia

te le

vels

of

owne

rshi

p co

ncen

trat

ion.

Com

peti

tive

pre

ssur

e do

es n

ot a

ffec

t new

ly c

reat

ed f

irm

s, b

ut d

oes

sign

ific

antl

y im

prov

e pe

rfor

man

ce o

f pr

ivat

ized

com

pani

es. P

rese

nce

of a

larg

e fo

reig

n ow

ner

incr

ease

s pr

oduc

tivit

y gr

owth

sig

nifi

cant

ly. C

oncl

ude

that

goo

d co

rpor

ate

gove

rnan

ce a

nd c

ompe

titiv

e pr

essu

res

are

com

plem

ents

.

Cor

icel

li an

d D

jank

ov (

2001

) Id

enti

fy th

e pr

esen

ce o

f so

ft b

udge

t con

stra

ints

and

ana

lyze

thei

r im

pact

on

ente

rpri

se r

estr

uctu

ring

in R

oman

ia d

urin

g th

e in

itia

l tr

ansi

tion

peri

od. E

mpl

oy a

sim

ple

anal

ytic

al m

odel

and

a s

ampl

e of

4,4

29 e

nter

pris

es w

ith

data

fro

m 1

992-

1995

to te

st w

heth

er

hard

enin

g bu

dget

con

stra

ints

pro

mot

es b

enef

icia

l res

truc

turi

ng

and

new

inve

stm

ent o

r w

heth

er a

cces

s to

ext

erna

l fin

anci

ng is

re

quir

ed to

pro

mot

e ne

w in

vest

men

t.

Find

that

har

d bu

dget

con

stra

ints

(H

BC

s) d

o pr

omot

e pa

ssiv

e re

stru

ctur

ing,

in th

e fo

rm o

f la

bor

shed

ding

, but

not

new

inve

stm

ent.

Act

ive

rest

ruct

urin

g re

quir

es a

cces

s to

ext

erna

l fin

anci

ng. T

ight

ened

ba

nk c

redi

t can

indu

ce H

BC

s an

d ra

ise

ente

rpri

se e

ffic

ienc

y in

the

shor

t-ru

n, b

ut a

t the

cos

t of

curt

ailin

g in

vest

men

t.

Ear

le a

nd

Tel

egdy

(20

02)

Exa

min

e im

pact

of

priv

atiz

atio

n—an

d m

etho

d of

pri

vatiz

atio

n—on

fir

m p

erfo

rman

ce in

Rom

ania

ove

r th

e pe

riod

199

2-19

99.

Em

ploy

a d

atas

et o

f 2,

354

firm

s ow

ned

by th

e St

ate

Ow

ners

hip

Fund

(SO

F) in

199

2, a

nd tr

ace

evol

utio

n of

ow

ners

hip

over

nex

t si

x ye

ars;

mos

t of

thes

e (7

7%)

still

hav

e so

me

stat

e ow

ners

hip

(50.

9% m

edia

n) in

199

8.

Sho

w c

onsi

sten

tly

posi

tive,

hig

hly

sign

ific

ant e

ffec

ts o

f pr

ivat

e ow

ners

hip

on la

bor

prod

uctiv

ity

grow

th, w

ith

the

poin

t est

imat

e im

plyi

ng a

n in

crem

enta

l 1.0

to 1

.7 p

erce

ntag

e po

int g

row

th in

pr

oduc

tivit

y fo

r a

10%

ris

e in

pri

vate

sha

reho

ldin

g. I

nsid

er tr

ansf

ers

and

mas

s pr

ivat

izat

ions

hav

e sm

alle

r, b

ut s

till

sign

ific

antl

y po

sitiv

e ef

fect

s.

Sm

ith,

Cin

and

V

odop

ivec

(1

997)

Usi

ng a

sam

ple

wit

h 22

,735

fir

m-y

ears

of

data

dra

wn

from

per

iod

of “

spon

tane

ous

priv

atiz

atio

n” in

Slo

veni

a (1

989-

1992

), e

xam

ine

the

impa

ct o

f fo

reig

n an

d em

ploy

ee o

wne

rshi

p on

fir

m

perf

orm

ance

.

Fin

d th

at a

per

cent

age

poin

t inc

reas

e in

for

eign

ow

ners

hip

is

asso

ciat

ed w

ith

a 3.

9% in

crea

se in

val

ue-a

dded

, and

for

em

ploy

ee

owne

rshi

p w

ith

a 1.

4% in

crea

se. A

lso

find

that

fir

ms

wit

h hi

gher

re

venu

es, p

rofi

ts, a

nd e

xpor

ts a

re m

ore

like

ly to

exh

ibit

fore

ign

and

empl

oyee

ow

ners

hip.

Tab

le 5

. Sum

mar

y of

Em

piri

cal S

tudi

es o

f P

riva

tiza

tion

in R

ussi

a an

d F

orm

er S

ovie

t R

epub

lics

Stud

y Sa

mpl

e de

scri

ptio

n, s

tudy

per

iod,

and

met

hodo

logy

Su

mm

ary

of e

mpi

rica

l fin

ding

s an

d co

nclu

sion

s

Dja

nkov

(1

999a

) In

vest

igat

es th

e re

latio

n be

twee

n ow

ners

hip

stru

ctur

e an

d en

terp

rise

res

truc

turi

ng f

or 9

60 f

irm

s pr

ivat

ized

in s

ix n

ewly

in

depe

nden

t sta

tes

betw

een

1995

and

199

7. E

mpl

oy s

urve

y da

ta c

olle

cted

by

the

Wor

ld B

ank

in la

te 1

997

from

Geo

rgia

, K

azak

hsta

n, K

yrgy

z R

epub

lic,

Mol

dova

, Rus

sia

and

Ukr

aine

.

Show

that

for

eign

ow

ners

hip

is p

ositi

vely

ass

ocia

ted

wit

h en

terp

rise

re

stru

ctur

ing

at h

igh

owne

rshi

p le

vels

(>

30%

), w

hile

man

ager

ial o

wne

rshi

p is

po

sitiv

ely

rela

ted

to r

estr

uctu

ring

at l

ow (

<10

%)

or h

igh

leve

ls, b

ut n

egat

ive

at

inte

rmed

iate

leve

ls. E

mpl

oyee

ow

ners

hip

is b

enef

icia

l to

labo

r pr

oduc

tivit

y at

lo

w o

wne

rshi

p le

vels

, but

is o

ther

wis

e in

sign

ific

ant.

Dja

nkov

(1

999b

) U

sing

sam

e su

rvey

dat

a as

in D

jank

ov (

1999

a) a

bove

, stu

dies

ef

fect

s of

dif

fere

nt p

riva

tizat

ion

mod

aliti

es o

n re

stru

ctur

ing

proc

ess

in G

eorg

ia (

92 f

irm

s) a

nd M

oldo

va (

149

firm

s).

Geo

rgia

em

ploy

s vo

uche

r pr

ivat

izat

ion,

whi

le th

e m

ajor

ity

of

Mol

dova

n fi

rms

are

acqu

ired

by

inve

stm

ent f

unds

—an

d nu

mer

ous

othe

rs a

re s

old

to m

anag

ers

for

cash

.

Pri

vatiz

atio

n th

roug

h m

anag

emen

t buy

-out

s is

pos

itive

ly a

ssoc

iate

d w

ith

ente

rpri

se r

estr

uctu

ring

, whi

le v

ouch

er p

riva

tized

fir

ms

do n

ot r

estr

uctu

re m

ore

rapi

dly

than

fir

ms

that

rem

ain

stat

e-ow

ned.

Im

plie

s th

at m

anag

ers

who

gai

n ow

ners

hip

for

free

may

hav

e le

ss in

cent

ive

to r

estr

uctu

re, a

s th

eir

inco

me

is n

ot

sole

ly b

ased

on

the

succ

ess

of th

e en

terp

rise

.

Ear

le (

1998

) In

vest

igat

es th

e im

pact

of

owne

rshi

p st

ruct

ure

on th

e (l

abor

) pr

oduc

tivit

y of

Rus

sian

indu

stri

al f

irm

s. U

sing

199

4 su

rvey

da

ta, e

xam

ines

dif

fere

ntia

l im

pact

of

insi

der,

out

side

r, a

nd

stat

e ow

ners

hip

on th

e pe

rfor

man

ce o

f 43

0 fi

rms-

-of

whi

ch

86 r

emai

n 10

0% s

tate

-ow

ned,

299

are

par

tially

pri

vatiz

ed,

and

45 a

re n

ewly

-cre

ated

. Adj

usts

em

piri

cal m

etho

ds to

ac

coun

t for

tend

ency

of

insi

ders

to c

laim

dom

inan

t ow

ners

hip

in th

e be

st f

irm

s be

ing

dive

sted

.

OL

S re

gres

sion

s sh

ow a

pos

itiv

e im

pact

of

priv

ate

(rel

ativ

e to

sta

te)

shar

e ow

ners

hip

on la

bor

prod

uctiv

ity,

wit

h th

is r

esul

t pri

mar

ily

due

to m

anag

eria

l ow

ners

hip.

Aft

er a

djus

ting

for

sele

ctio

n bi

as, h

owev

er, f

inds

that

onl

y ou

tsid

er

owne

rshi

p is

sig

nifi

cant

ly a

ssoc

iate

d w

ith

prod

uctiv

ity

impr

ovem

ents

. Str

esse

s th

at le

avin

g in

side

rs in

con

trol

of

firm

s—w

hile

pol

itica

lly

expe

dien

t—ha

s ve

ry

nega

tive

long

-ter

m im

plic

atio

ns f

or th

e re

stru

ctur

ing

of R

ussi

an in

dust

ry.

Ear

le a

nd

Est

rin

(199

8)

Usi

ng a

sam

ple

very

sim

ilar

to th

at u

sed

by E

arle

(19

98)

abov

e, e

xam

ine

whe

ther

pri

vatiz

atio

n, c

ompe

titio

n an

d th

e ha

rden

ing

of b

udge

t con

stra

ints

pla

y ef

fici

ency

-enh

anci

ng

role

s in

Rus

sia.

Fin

d a

10 p

erce

ntag

e po

int i

ncre

ase

in p

riva

te s

hare

ow

ners

hip

rais

es r

eal s

ales

pe

r em

ploy

ee b

y 3-

5%. S

ubsi

dies

(so

ft b

udge

t con

stra

ints

) re

duce

the

pace

of

rest

ruct

urin

g in

sta

te-o

wne

d fi

rms,

but

the

effe

ct is

sm

all a

nd o

ften

in

sign

ific

ant.

Jone

s an

d M

ygin

d (2

002)

Use

s fi

xed

effe

cts

prod

uctio

n fu

nctio

n m

odel

s es

tim

ated

on

a ra

ndom

sam

ple

of 6

60 E

ston

ian

firm

s w

ith

data

fro

m 1

993

to

1997

. Pri

vatiz

atio

n in

Est

onia

cre

ated

a w

idel

y va

ried

ow

ners

hip

stru

ctur

es, a

nd s

tudy

att

empt

s to

est

imat

e re

latio

nshi

p be

twee

n ow

ners

hip

and

prod

uctiv

e ef

fici

ency

.

Find

that

, rel

ativ

e to

sta

te o

wne

rshi

p, (

1) p

riva

te o

wne

rshi

p is

13-

22%

mor

e ef

fici

ent,

(2)

all t

ypes

of

priv

ate

owne

rshi

p ar

e m

ore

prod

uctiv

e, th

ough

co

ncen

trat

ed m

anag

eria

l ow

ners

hip

has

the

bigg

est e

ffec

t (21

-32%

im

prov

emen

t), a

nd o

wne

rshi

p by

dom

estic

out

side

rs th

e sm

alle

st (

0-15

%),

wit

h ow

ners

hip

by f

orei

gner

s (2

1-32

%)

and

empl

oyee

s (2

4-25

%)

yiel

ding

in

term

edia

te le

vels

of

impr

ovem

ent.

Dja

nkov

an

d N

enov

a U

se d

ata

for

over

6,6

00 K

azak

h en

terp

rise

s du

ring

199

6-99

to

exam

ine

“why

did

pri

vati

zati

on f

ail i

n K

azak

hsta

n?”

Try

ing

Find

that

new

ly c

reat

ed (

de n

ovo)

pri

vate

ent

erpr

ises

, est

abli

shed

aft

er 1

992,

pe

rfor

m m

arke

dly

bette

r th

an p

riva

tized

fir

ms

or th

ose

that

rem

ain

SOE

s.

(200

0)

to e

xpla

in r

apid

dec

lines

in o

utpu

t for

all

sect

ors

exce

pt o

il an

d ga

s.

Pri

vatiz

ed f

irm

s pe

rfor

m a

s ba

dly

as, o

r w

orse

than

, SO

Es.

Pri

vatiz

atio

n fa

ils

to

impr

ove

perf

orm

ance

bec

ause

div

este

d fi

rms

are

used

as

shor

t-te

rm v

ehic

les

for

extr

acti

ng p

riva

te b

enef

its.

Gre

gori

an

(200

0)

Exa

min

es r

elat

ions

hip

betw

een

owne

rshi

p an

d op

erat

ing

perf

orm

ance

usi

ng a

dat

aset

of

5,30

0 sm

all,

med

ium

and

la

rge

Lit

huan

ian

com

pani

es w

ith d

ata

over

per

iod

1995

-199

7.

Per

form

ance

def

ined

as

incr

ease

d re

venu

es a

nd im

prov

ed

expo

rt p

erfo

rman

ce. A

lso

use

regr

essi

on a

naly

sis

to s

tudy

su

bsam

ple

of 6

18 c

ompa

nies

whi

ch a

re f

ully

sta

te-o

wne

d in

19

95; r

ough

ly h

alf

of th

ese

are

part

iall

y pr

ivat

ized

ove

r ne

xt

two

year

s.

Con

clud

e th

at p

riva

tiza

tion

has

brou

ght s

igni

fica

nt p

erfo

rman

ce im

prov

emen

ts

over

all.

Als

o fi

nd a

neg

ativ

e bi

as in

sel

ecti

ng f

irm

s fo

r pr

ivat

izat

ion;

onc

e th

is

acco

unte

d fo

r, p

erfo

rman

ce im

prov

emen

t is

even

mor

e dr

amat

ic (

ther

e is

a

nine

-fol

d in

crea

se in

the

coef

fici

ent o

n pr

ivat

e ow

ners

hip)

. Exp

ecte

d su

bsid

ies

cont

ribu

te n

egat

ivel

y to

per

form

ance

, but

stu

dy f

inds

no

sign

ific

ant i

mpa

ct

rega

rdin

g m

arke

t com

petit

ion.

And

erso

n,

Lee

and

M

urre

ll (2

000)

Exa

min

es e

ffec

ts o

f co

mpe

titio

n an

d ow

ners

hip

on th

e ef

fici

ency

of

new

ly p

riva

tized

fir

ms

usin

g a

sam

ple

211

Mon

golia

n co

mpa

nies

wit

h (s

urve

y-de

rive

d) o

wne

rshi

p da

ta

in 1

995.

Mon

golia

’s p

riva

tizat

ion

prog

ram

is im

plem

ente

d in

a

coun

try

lack

ing

the

basi

c in

stitu

tions

of

capi

tali

sm.

Find

s th

at c

ompe

titio

n ha

s qu

alita

tivel

y la

rge

effe

cts;

per

fect

ly c

ompe

titiv

e fi

rms

have

nea

rly

doub

le th

e ef

fici

ency

of

mon

opol

ies.

Ent

erpr

ises

wit

h re

sidu

al s

tate

ow

ners

hip

appe

ar to

be

mor

e ef

fici

ent t

han

othe

r en

terp

rise

s,

refl

ecti

ng a

n en

viro

nmen

t whe

re th

e go

vern

men

t is

pres

sure

d to

foc

us o

n ef

fici

ency

and

inst

itut

ions

gav

e lit

tle v

oice

to o

utsi

de o

wne

rs.

Est

rin

and

Ros

evea

r (1

999)

Use

a r

ando

m s

ampl

e of

150

Ukr

aini

an f

irm

s w

ith

data

fro

m

1996

to te

st th

e re

latio

nshi

p be

twee

n en

terp

rise

per

form

ance

an

d ow

ners

hip.

Exp

lore

whe

ther

pri

vatiz

atio

n yi

elds

im

prov

ed c

ompa

ny p

erfo

rman

ce a

nd w

heth

er s

peci

fic

owne

rshi

p fo

rms

lead

to d

iffe

rent

iate

d pe

rfor

man

ce a

t the

en

terp

rise

leve

l.

Find

that

pri

vati

zati

on, p

er s

e, is

not

sig

nifi

cant

ly a

ssoc

iate

d w

ith

impr

oved

pe

rfor

man

ce, a

nd f

ind

no b

enef

it to

out

side

(ve

rsus

insi

der)

ow

ners

hip.

Do

find

cl

ear

posi

tive

effe

cts

asso

ciat

ed w

ith

insi

der

owne

rshi

p. O

utsi

de o

wne

rs a

re

neve

r ab

le to

del

iver

per

form

ance

sup

erio

r to

SO

Es,

and

insi

der

owne

rshi

p

does

not

yie

ld a

bet

ter

prof

it pe

rfor

man

ce th

an in

non

-pri

vati

zed

com

pani

es.

And

reye

va

(200

1)

Exa

min

es e

mpi

rica

lly

the

resp

onsi

vene

ss o

f fi

rm p

erfo

rman

ce

to o

wne

rshi

p an

d m

arke

t str

uctu

res,

sec

tor

and

regi

onal

sp

ecif

icit

y, a

nd v

aryi

ng d

egre

es o

f so

ft b

udge

t con

stra

ints

. U

se a

pan

el o

f 52

4 m

ediu

m a

nd la

rge

firm

s w

ith

perf

orm

ance

da

ta f

or 1

996-

98.

Fin

d th

at f

irm

eff

icie

ncy

impr

oves

sig

nifi

cant

ly w

ith

priv

atiz

atio

n. A

lso

docu

men

t a s

igni

fica

nt in

flue

nce

of in

dust

ry a

ffili

atio

n an

d re

gion

al lo

catio

n in

sh

apin

g fi

rm p

erfo

rman

ce; m

ore

conc

entr

ated

mar

kets

per

form

bet

ter.

C

oncl

udes

that

a p

olic

y of

attr

actin

g st

rate

gic

inve

stor

s ca

pabl

e of

pus

hing

re

stru

ctur

ing

and

brin

ging

new

inve

stm

ent t

o pr

ivat

ized

fir

ms

shou

ld b

ecom

e a

prio

rity

for

pol

icy-

mak

ers.

Piv

ovar

sky

(200

1)

Usi

ng d

ata

on 3

76 m

ediu

m a

nd la

rge

Ukr

aini

an f

irm

s,

inve

stig

ate

rela

tions

hip

betw

een

owne

rshi

p co

ncen

trat

ion

and

ente

rpri

se p

erfo

rman

ce.

Find

that

ow

ners

hip

conc

entr

atio

n is

pos

itiv

ely

asso

ciat

ed w

ith

ente

rpri

se

perf

orm

ance

, and

that

con

cent

rate

d ow

ners

hip

by f

orei

gn c

ompa

nies

and

ban

ks

is a

ssoc

iate

d w

ith

bett

er p

erfo

rman

ce th

an c

once

ntra

ted

dom

esti

c ow

ners

hip.

C

oncl

udes

that

pri

vatiz

atio

n m

etho

d ha

s la

stin

g im

pact

on

owne

rshi

p st

ruct

ure;

pr

ivat

izat

ion

met

hods

that

gra

nt s

igni

fica

nt o

wne

rshi

p st

akes

to s

ingl

e pa

rtie

s ha

ve g

reat

er e

ffic

ienc

y ga

ins

than

met

hods

that

cre

ate

disp

erse

d ow

ners

hip.

Tab

le 5

. Sum

mar

y of

Rec

ent E

mpi

rica

l Stu

dies

Exa

min

ing

Whe

ther

the

Im

posi

tion

of

Har

d B

udge

t C

onst

rain

ts (

HB

C)

and

Impr

oved

Inc

enti

ves

for

Man

ager

s Im

prov

es C

orpo

rate

Per

form

ance

Stud

y Sa

mpl

e de

scri

ptio

n, s

tudy

per

iod,

and

met

hodo

logy

Su

mm

ary

of e

mpi

rica

l fin

ding

s an

d co

nclu

sion

s

Gro

ves,

Hon

g,

McM

illan

and

N

augh

ton

(199

4)

Usi

ng a

sam

ple

of d

ata

for

769

Chi

nese

sta

te-o

wne

d en

terp

rise

s ov

er th

e ye

ars

1980

-89,

exa

min

e th

e im

pact

of

deve

lopi

ng a

co

mpe

titi

ve m

anag

eria

l lab

or m

arke

t on

firm

per

form

ance

and

m

anag

emen

t pro

duct

ivit

y.

Find

that

new

pos

itive

and

neg

ativ

e in

cent

ives

wer

e ef

fect

ive

in

prom

otin

g im

prov

ed p

erfo

rman

ce, a

nd th

at m

anag

emen

t con

trac

ts w

ere

wid

ely

adop

ted

as p

art o

f re

form

pro

cess

. Poo

rly

perf

orm

ing

man

ager

s w

ere

mor

e li

kely

to b

e re

plac

ed, a

nd m

anag

eria

l pay

was

link

ed to

fir

m

sale

s an

d pr

ofit

s. O

utpu

t per

wor

ker

rose

67

perc

ent i

n re

al te

rms

betw

een

1980

and

198

9 fo

r sa

mpl

e fi

rms.

Com

peti

tion

impr

oves

pe

rfor

man

ce w

itho

ut o

wne

rshi

p ch

ange

s.

Fryd

man

, Gra

y,

Hes

sel a

nd

Rap

aczy

nski

(2

000)

Exa

min

e w

heth

er th

e im

posi

tion

of

hard

bud

get c

onst

rain

ts is

al

one

suff

icie

nt to

impr

ove

corp

orat

e pe

rfor

man

ce in

the

Cze

ch

Rep

ublic

, Hun

gary

and

Pol

and.

Em

ploy

s a

sam

ple

of 2

16 f

irm

s,

split

bet

wee

n st

ate-

owne

d (3

1%),

pri

vatiz

ed (

43%

), a

nd p

riva

te

(26%

) fi

rms.

Find

pri

vatiz

atio

n al

one

adde

d ne

arly

10

perc

enta

ge p

oint

s to

the

reve

nue

grow

th o

f a

firm

sol

d to

out

side

ow

ners

. Mos

t im

port

ant,

find

s th

at th

e th

reat

of

hard

bud

get c

onst

rain

ts f

or p

oorl

y pe

rfor

min

g SO

Es

falte

rs,

sinc

e go

vern

men

ts a

re u

nwil

ling

to a

llow

thes

e fi

rms

to f

ail.

The

bru

nt o

f SO

Es’

low

er c

redi

twor

thin

ess

falls

on

stat

e cr

edit

ors.

Pri

vati

zati

on

requ

ired

to im

prov

e pe

rfor

man

ce; t

hrea

t of

HB

C n

ot c

redi

ble.

Ber

tero

and

R

ondi

(20

00)

Em

ploy

ing

a sa

mpl

e of

150

Ita

lian

man

ufac

turi

ng S

OE

s, w

ith

1,27

8 fi

rm-y

ear

obse

rvat

ions

, exa

min

e w

heth

er im

posi

tion

of

a ha

rd b

udge

t con

stra

int c

an im

prov

e SO

E p

erfo

rman

ce. E

xplo

its

the

fact

that

fis

cal e

nvir

onm

ent b

ecam

e m

uch

tigh

ter

for

Ital

ian

stat

e en

terp

rise

s du

ring

the

late

198

0s.

Fin

d th

at th

e S

OE

fir

ms’

res

pons

e to

incr

ease

d de

bt d

urin

g th

e ha

rd

budg

et c

onst

rain

t per

iod,

198

8-93

, was

con

sist

ent w

ith

fina

ncia

l pr

essu

re, b

ut w

as n

ot d

urin

g th

e so

ft b

udge

t con

stra

int p

erio

d of

197

7-87

. Onl

y du

ring

the

late

r pe

riod

do

firm

s re

spon

d to

fin

anci

al p

ress

ure

by

incr

easi

ng T

FP a

nd r

educ

ing

empl

oym

ent.

Impo

sitio

n of

HB

C im

prov

es

perf

orm

ance

wit

hout

ow

ners

hip

chan

ge.

Tab

le 6

. Sum

mar

y of

Em

piri

cal S

tudi

es o

f P

riva

tiza

tion

in C

hina

Stud

y Sa

mpl

e de

scri

ptio

n, s

tudy

per

iod,

and

met

hodo

logy

Su

mm

ary

of e

mpi

rica

l fin

ding

s an

d co

nclu

sion

s

Sun

and

Ton

g (2

003)

E

valu

ates

the

perf

orm

ance

of

634

Chi

nese

SO

Es

list

ed

on s

tock

exc

hang

es d

urin

g th

e pe

riod

199

4-19

98. U

se

both

MN

R p

re-

vs. p

ost-

priv

atiz

atio

n co

mpa

riso

ns a

nd

pane

l dat

a re

gres

sion

met

hods

to e

xam

ine

whe

ther

pa

rtia

l div

estm

ent i

mpr

oves

fir

m’s

ear

ning

s, o

utpu

t, an

d ef

fici

ency

(re

al o

utpu

t per

em

ploy

ee).

Als

o ex

amin

e di

ffer

enti

al e

ffec

t of

stat

e an

d “l

egal

per

son”

sh

areh

oldi

ngs.

Usi

ng M

NR

met

hods

, fin

d si

gnif

ican

t im

prov

emen

ts in

ret

urn

on s

ales

and

the

leve

l of

real

ear

ning

s, r

eal s

ales

, and

em

ploy

ee p

rodu

ctiv

ity

afte

r pa

rtia

l pr

ivat

izat

ion.

Als

o fi

nd th

at m

ore

rece

ntly

pri

vati

zed

com

pani

es a

re o

f hi

gher

qu

alit

y—an

d pe

rfor

m b

ette

r af

ter

dive

stm

ent-

-tha

n do

thos

e di

vest

ed e

arlie

r.

Pan

el d

ata

regr

essi

ons

veri

fy b

asic

fin

ding

s th

at p

riva

tizat

ion

impr

oves

pe

rfor

man

ce, a

nd f

ind

that

dif

fere

nt o

wne

rshi

p st

ruct

ures

hav

e op

posi

te e

ffec

ts o

n fi

rm’s

per

form

ance

. Sta

te s

hare

hold

ings

hin

der

perf

orm

ance

, whi

le “

lega

l per

son”

sh

areh

oldi

ngs

prom

ote

impr

ovem

ents

.

Wei

, Var

ella

, D

’Sou

za a

nd

Has

san

(200

3)

Use

MN

R m

etho

ds to

test

whe

ther

per

form

ance

im

prov

es f

or 2

08 C

hine

se c

ompa

nies

par

tiall

y pr

ivat

ized

thro

ugh

publ

ic s

hare

off

erin

g be

twee

n 19

90

and

1997

.

Doc

umen

t sig

nifi

cant

impr

ovem

ents

in r

eal o

utpu

t, as

sets

and

sal

es, s

ales

ef

fici

ency

, the

leve

l of

real

pro

fits

and

leve

rage

. Fir

ms

in w

hich

mor

e th

an 5

0%

votin

g co

ntro

l is

conv

eyed

to p

riva

te in

vest

ors

impr

ove

perf

orm

ance

mor

e th

an d

o th

ose

that

rem

ain

stat

e co

ntro

lled

.

Tia

n (2

002)

E

xam

ines

the

owne

rshi

p an

d co

ntro

l str

uctu

re o

f 82

6 pa

rtia

lly

priv

atiz

ed c

ompa

nies

list

ed o

n C

hine

se s

tock

ex

chan

ges

from

199

4-19

98 a

nd te

sts

the

rela

tions

hip

betw

een

owne

rshi

p st

ruct

ure

and

firm

val

ue—

as

mea

sure

d by

Tob

in’s

q.

Find

that

gov

ernm

ent s

hare

hold

ing

rem

ain

very

larg

e in

par

tial

ly p

riva

tized

co

mpa

nies

, and

that

the

rela

tion

ship

bet

wee

n st

ate

hold

ings

and

fir

m v

alue

is U

-sh

aped

. Goi

ng f

rom

sta

te o

wne

rshi

p le

vels

of

0 to

30%

, inc

reas

ing

owne

rshi

p ca

uses

fir

m v

alue

to d

ecli

ne, b

ut a

fter

that

Tob

in’s

q in

crea

ses

wit

h in

crea

sing

st

ate

owne

rshi

p.

Jia,

Sun

and

T

ong

(200

2)

Exa

min

e w

heth

er p

riva

tizat

ion

thro

ugh

listi

ng o

f C

hine

se c

ompa

nies

in H

ong

Kon

g ca

uses

per

form

ance

to

impr

ove.

Use

s a

sam

ple

of 4

1 C

hine

se H

-sha

re S

IPs

from

199

3-98

. Use

MN

R a

nd p

oole

d re

gres

sion

pan

el

data

met

hodo

logy

.

Fin

d th

at r

eal n

et p

rofi

ts a

re u

ncha

nged

aft

er p

riva

tiza

tion

, and

that

ret

urn

on s

ales

de

clin

es s

igni

fica

ntly

. Out

put i

ncre

ases

and

leve

rage

dec

lines

sig

nifi

cant

ly.

Reg

ress

ions

sho

w th

at s

tate

ow

ners

hip

is n

egat

ivel

y re

late

d to

per

form

ance

. H-

shar

e ow

ners

hip

has

sign

ific

ant,

posi

tive

effe

ct o

n pe

rfor

man

ce.