Several studies stressed that contrary to initial expectations, state-owned firms at the beginning of transition undertook painful measures to adjust to the new economic environment. This Paper investigates this behaviour in a simple game, a theoretic framework. It is argued that the massive amount of lay-offs created by state-owned firms during the initial phase of transition can be interpreted as a signal directed to the banking sector in order to obtain more favourable financing conditions for the subsequent process of restructuring. The conclusions are strongly supported by Polish firm level empirical evidence.
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Paper provided by C.E.P.R. Discussion Papers in its series CEPR Discussion Papers with number
2227.
Find related papers by JEL classification: C72 - Mathematical and Quantitative Methods - - Game Theory and Bargaining Theory - - - Noncooperative Games P31 - Economic Systems - - Socialist Institutions and Their Transitions - - - Socialist Enterprises and Their Transitions