Performance after mass privatisation : the case of Slovenia

Initial ownership structures resulting from the mass privatisation programme were intended as transitional, whereas optimal would be set up gradually and would result from secondary transactions. Therefore, mass privatisation is typically considered successful if secondary transactions lead to improved ownership, in particular, with emergence of strategic investors. If this approach is correct, positive effects of mass privatisation are thus not shown only by companies remaining in control of initial owners but mostly by the companies that have already gone through secondary privatisation. Accordingly, the success of secondary sales is to be evaluated by how successfully companies perform after the sale to new owners. This paper attempts to verify empirically those assumptions. The econometric analysis of panel data, after correcting for a selection bias, shows that TFP (total factor productivity) growth is highest in public companies. In addition we found that the secondary privatisation has had practically no positive effect on economic efficiency in the period 1995-99. We interpret these results as supporting evidence for the theoretical approach, which argues that the impact of strategic investors on performance may be ambiguous and that the quality of the capital market institutions is more important than ownership effects. The former creates incentives for performance by increasing the cost of expropriation of minority shareholders.