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Divide and Privatize: Firm Break-up and Performance

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  • Evžen Kocenda
  • Jan Hanousek

Abstract

We analyze the long-term effects of firm break-up and ownership change on corporate performance. Our analysis is based on a unique data set for a large number of Czech firms spanning the period 1996–2005. We employ a propensity score matching procedure to deal with endogeneity problems. Our results, which are generally in line with the positive effects of firm break-up found in the developed-market literature, show that the initial effects of firm break-up are positive but after a certain point they quickly diminish over time. Factors like changes in ownership structure and management are to be found behind later improvements in the performance of firms.

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File URL: http://www.cesifo-group.de/portal/page/portal/DocBase_Content/WP/WP-CESifo_Working_Papers/wp-cesifo-2011/wp-cesifo-2011-05/cesifo1_wp3465.pdf
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Bibliographic Info

Paper provided by CESifo Group Munich in its series CESifo Working Paper Series with number 3465.

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Date of creation: 2011
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Handle: RePEc:ces:ceswps:_3465

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Keywords: break-up of firms; corporate performance; ownership changes; privatization; emerging markets; endogeneity; propensity score matching procedure;

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References

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  1. Stepan Jurajda & Juraj Stancik, 2012. "Foreign Ownership and Corporate Performance: The Czech Republic at EU Entry," Czech Journal of Economics and Finance (Finance a uver), Charles University Prague, Faculty of Social Sciences, Charles University Prague, Faculty of Social Sciences, vol. 62(4), pages 306-324, August.
  2. Lizal, Lubomir & Singer, Miroslav & Svejnar, Jan, 1997. "Enterprise Break-ups and Performance During the Transition," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1757, C.E.P.R. Discussion Papers.
  3. Krishna B. Kumar & Raghuram G. Rajan & Luigi Zingales, 1999. "What Determines Firm Size?," NBER Working Papers 7208, National Bureau of Economic Research, Inc.
  4. Polona Domadenik & Janez Prašnikar & Jan Svejnar, 2008. "Restructuring of firms in transition: ownership, institutions and openness to trade," Journal of International Business Studies, Palgrave Macmillan, vol. 39(4), pages 725-746, June.
  5. Saul Estrin & Jan Hanousek & Evzen Kocenda & Jan Svejnar, 2009. "The Effects of Privatization and Ownership in Transition Economies," Journal of Economic Literature, American Economic Association, vol. 47(3), pages 699-728, September.
  6. Evžen Kočenda & Jan Hanousek, 2012. "State ownership and control in the Czech Republic," Economic Change and Restructuring, Springer, Springer, vol. 45(3), pages 157-191, August.
  7. Myeong-Hyeon Cho & Mark A. Cohen, 1997. "The economic causes and consequences of corporate divestiture," Managerial and Decision Economics, John Wiley & Sons, Ltd., vol. 18(5), pages 367-374.
  8. Rajeev H. Dehejia & Sadek Wahba, 1998. "Propensity Score Matching Methods for Non-experimental Causal Studies," NBER Working Papers 6829, National Bureau of Economic Research, Inc.
  9. Andrei Shleifer & Daniel Treisman, 2005. "A Normal Country: Russia After Communism," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 19(1), pages 151-174, Winter.
  10. Roland, Gérard, 1994. "On the Speed and Sequencing of Privatization and Restructuring," CEPR Discussion Papers, C.E.P.R. Discussion Papers 942, C.E.P.R. Discussion Papers.
  11. Bartel, Ann P. & Harrison, Ann E., 2000. "Ownership versus environment : disentangling the sources of public sector inefficiency," Policy Research Working Paper Series 2272, The World Bank.
  12. Shin, G. Hwan, 2008. "The profitability of asset sales as an explanation of asset divestitures," Pacific-Basin Finance Journal, Elsevier, Elsevier, vol. 16(5), pages 555-571, November.
  13. Evžen Kočenda, 1999. "Residual State Property in the Czech Republic," Eastern European Economics, M.E. Sharpe, Inc., M.E. Sharpe, Inc., vol. 37(5), pages 6-35, October.
  14. Estrin, Saul & Hanousek, Jan & Svejnar, Jan, 2009. "Effects of Privatization and Ownership in Transition Economies," Policy Research Working Paper Series 4811, The World Bank.
  15. Gérard Roland, 2000. "Transition and Economics: Politics, Markets, and Firms," MIT Press Books, The MIT Press, The MIT Press, edition 1, volume 1, number 0262182033, December.
  16. Grosfeld, Irena & Roland, Gérard, 1995. "Defensive and Strategic Restructuring in Central European Enterprises," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1135, C.E.P.R. Discussion Papers.
  17. Jan Hanousek & Evzen Kocenda & Jan Svejnar, 2005. "Origin and Concentration: Corporate Ownership, Control and Performance," CERGE-EI Working Papers wp259, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  18. Jan Hanousek & Libor Nemecek, 2001. "Czech parallel capital markets: discrepancies and inefficiencies," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 11(1), pages 45-55.
  19. A. Smith, Jeffrey & E. Todd, Petra, 2005. "Does matching overcome LaLonde's critique of nonexperimental estimators?," Journal of Econometrics, Elsevier, Elsevier, vol. 125(1-2), pages 305-353.
  20. Polona Domadenik & Lubomir Lizal & Marko Pahor, 2003. "Effect of Enterpise Break-Ups on Performance: Case of Former Yugoslav Republic of Macedonia," CERGE-EI Working Papers wp216, The Center for Economic Research and Graduate Education - Economic Institute, Prague.
  21. Jan Hanousek & Evžen Kočenda, 2008. "Potential of the state to control privatized firms," Economic Change and Restructuring, Springer, Springer, vol. 41(2), pages 167-186, June.
  22. D'Souza, Juliet & Megginson, William & Nash, Robert, 2007. "The effects of changes in corporate governance and restructurings on operating performance: Evidence from privatizations," Global Finance Journal, Elsevier, vol. 18(2), pages 157-184.
  23. Edwin Leuven & Barbara Sianesi, 2003. "PSMATCH2: Stata module to perform full Mahalanobis and propensity score matching, common support graphing, and covariate imbalance testing," Statistical Software Components S432001, Boston College Department of Economics, revised 12 Feb 2014.
  24. Jan Hanousek & Evzen Kocenda & Jan Svejnar, 2009. "Divestitures, privatization and corporate performance in emerging markets," The Economics of Transition, The European Bank for Reconstruction and Development, The European Bank for Reconstruction and Development, vol. 17(1), pages 43-73, 01.
  25. Aghion, Philippe & Blanchard, Olivier J & Carlin, Wendy, 1994. "The Economics of Enterprise Restructuring in Central and Eastern Europe," CEPR Discussion Papers, C.E.P.R. Discussion Papers 1058, C.E.P.R. Discussion Papers.
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Cited by:
  1. Richard Frensch & Achim Schmillen, 2011. "The Penn Effect and Transition : The New EU Member States in International Perspective," Working Papers, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies) 295, Institut für Ost- und Südosteuropaforschung (Institute for East and South-East European Studies).

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