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Why Ownership Matters? Entrepreneurship and the Restructuring of Enterprises in Central Europe

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  • Frydman, R.
  • Hessel, M.
  • Rapaczynski, A.
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    Abstract

    This paper, based on a study of mid-sized firms in the Czech Republic, Hungary, and Poland, seeks to explain the reasons behind the marked impact of ownership on firm performance which has been observed in a number of studies in Eastern Europe and other parts of the world. Focusing in particular on the differential impact of ownership on revenue and cost performance, the paper argues that privatized firms controlled by outside investors are more entrepreneurial than those controlled by corporate insiders or the state. The paper provides evidence that all state and privatized firms in transition economies engage in similar types of restructuring, but that product restructuring by firms owned by outsider investors is significantly more effective (in terms of revenue generation) than that by firms with other types of ownership. The paper also examines the impact of managerial turnover on revenue performance, as well as differences among managers of firms with different types of ownership, and concludes that the more entrepreneurial behavior of outsider-owned firms is due primarily to incentive effects, rather than human capital effects, of privatization. More specifically, the authors argue that the success of outsider-owned firms is due to their greater readiness to accept risks (as evidenced by the higher variance of the revenues generated by restructuring) and a lesser need to defend, and account for, their managerial decisions.

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    File URL: http://econ.as.nyu.edu/docs/IO/9188/RR00-03.PDF
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    Bibliographic Info

    Paper provided by C.V. Starr Center for Applied Economics, New York University in its series Working Papers with number 00-03.

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    Length: 37 pages
    Date of creation: 2000
    Date of revision:
    Handle: RePEc:cvs:starer:00-03

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    Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
    Phone: (212) 998-8936
    Fax: (212) 995-3932
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    Web page: http://econ.as.nyu.edu/object/econ.cvstarr.html
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    Postal: C.V. Starr Center, Department of Economics, New York University, 19 W. 4th Street, 6th Floor, New York, NY 10012
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    Related research

    Keywords: OWNERSHIP; PRIVATIZATION; POLITICIZATION; ENTREPRENEURSHIP; INCENTIVES; HUMAN CAPITAL;

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