IDEAS home Printed from https://ideas.repec.org/p/wdi/papers/2003-541.html
   My bibliography  Save this paper

Defensive and Strategic Restructuring of Firms during the Transition to a Market Economy

Author

Listed:
  • Polona Domadenik
  • Janez Pra??nikar
  • Jan Svejnar

Abstract

We develop a theoretical framework and provide empirical estimates of the extent of several forms of restructuring in 130 privatized firms in a model transition economy (Slovenia) during the 1996-1998 period. In view of the institutional developments in the transition economies, we divide restructuring into defensive (related to short-term cutting costs) and strategic (focused on increasing revenues through investment). Using predictions from the theoretical framework, we estimate a firm-level labor demand equation to test defensive restructuring and an augmented investment equation to assess strategic restructuring. The labor demand estimates point to relatively slow defensive restructuring, while the investment model estimates indicate the presence of credit rationing and bargaining in most types of soft investment. We do not find support for the hypothesis that firms treat expenditures on employee training as investment, but there is evidence that they behave similarly as those from developed countries in that they display features of profit maximizing behavior.

Suggested Citation

  • Polona Domadenik & Janez Pra??nikar & Jan Svejnar, 2003. "Defensive and Strategic Restructuring of Firms during the Transition to a Market Economy," William Davidson Institute Working Papers Series 541, William Davidson Institute at the University of Michigan.
    • Handle: RePEc:wdi:papers:2003-541
    as

    Download full text from publisher

    File URL: http://deepblue.lib.umich.edu/bitstream/2027.42/39926/3/wp541.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Saul Estrin, 2002. "Competition and Corporate Governance in Transition," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 101-124, Winter.
    2. Simeon Djankov & Peter Murrell, 2002. "Enterprise Restructuring in Transition: A Quantitative Survey," Journal of Economic Literature, American Economic Association, vol. 40(3), pages 739-792, September.
    3. Gabor Korosi, 1998. "Labour Demand During Transition in Hungary," William Davidson Institute Working Papers Series 116, William Davidson Institute at the University of Michigan.
    4. repec:fth:harver:1491 is not listed on IDEAS
    5. Kenneth Arrow, 1962. "Economic Welfare and the Allocation of Resources for Invention," NBER Chapters, in: The Rate and Direction of Inventive Activity: Economic and Social Factors, pages 609-626, National Bureau of Economic Research, Inc.
    6. Stephen Bond & Costas Meghir, 1994. "Dynamic Investment Models and the Firm's Financial Policy," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 61(2), pages 197-222.
    7. Steven M. Fazzari & R. Glenn Hubbard & Bruce C. Petersen, 1988. "Financing Constraints and Corporate Investment," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 19(1), pages 141-206.
    8. Olivier Blanchard & Changyong Rhee & Lawrence Summers, 1993. "The Stock Market, Profit, and Investment," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 108(1), pages 115-136.
    9. Abel, Andrew B & Blanchard, Olivier J, 1986. "The Present Value of Profits and Cyclical Movements in Investment," Econometrica, Econometric Society, vol. 54(2), pages 249-273, March.
    10. Lubomir Lizal & Miroslav Singer & Jan Svejnar, 2001. "Enterprise Breakups And Performance During The Transition From Plan To Market," The Review of Economics and Statistics, MIT Press, vol. 83(1), pages 92-99, February.
    11. Kiviet, Jan F., 1995. "On bias, inconsistency, and efficiency of various estimators in dynamic panel data models," Journal of Econometrics, Elsevier, vol. 68(1), pages 53-78, July.
    12. Jeffry M. Netter & William L. Megginson, 2001. "From State to Market: A Survey of Empirical Studies on Privatization," Journal of Economic Literature, American Economic Association, vol. 39(2), pages 321-389, June.
    13. Lubomír Lízal & Jan Svejnar, 2002. "Investment, Credit Rationing, And The Soft Budget Constraint: Evidence From Czech Panel Data," The Review of Economics and Statistics, MIT Press, vol. 84(2), pages 353-370, May.
    14. Himmelberg, Charles P & Petersen, Bruce C, 1994. "R&D and Internal Finance: A Panel Study of Small Firms in High-Tech Industries," The Review of Economics and Statistics, MIT Press, vol. 76(1), pages 38-51, February.
    15. Alan Bevan & Saul Estrin & Mark E. Schaffer, 1999. "Determinants of Enterprise Performance during Transition," CERT Discussion Papers 9903, Centre for Economic Reform and Transformation, Heriot Watt University.
    16. Nandini Gupta & John Ham & Jan Svejnar, 2000. "Priorities and Sequencing in Privatization: Theory and Evidence from the Czech Republic," Econometric Society World Congress 2000 Contributed Papers 1580, Econometric Society.
    17. Carlin, Wendy & Fries, Steven & Schaffer, Mark & Seabright, Paul, 2001. "Competition and Enterprise Performance in Transition Economies: Evidence from a Cross-country Survey," CEPR Discussion Papers 2840, C.E.P.R. Discussion Papers.
    18. Jan Svejnar, 2002. "Transition Economies: Performance and Challenges," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 3-28, Winter.
    19. J. Stiglitz, 1999. "Whither Reform? Ten Years of the Transition," Voprosy Ekonomiki, NP Voprosy Ekonomiki, vol. 7.
    20. Roman Frydman & Cheryl Gray & Marek Hessel & Andrzej Rapaczynski, 1999. "When Does Privatization Work? The Impact of Private Ownership on Corporate Performance in the Transition Economies," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(4), pages 1153-1191.
    21. John R. Cable & Felix R. Fitzroy, 1980. "Productive Efficiency, Incentives And Employee Participation: Some Preliminary Results For West Germany," Kyklos, Wiley Blackwell, vol. 33(1), pages 100-121, February.
    22. Shirley, Mary & Walsh, Patrick, 2000. "Public versus private ownership : the current state of the debate," Policy Research Working Paper Series 2420, The World Bank.
    23. Wendy Carlin & John Van Reenen & Toby Wolfe, 1995. "Enterprise restructuring in early transition: the case study evidence from Central and Eastern Europe1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(4), pages 427-458, December.
    24. Chandler Jr. , Alfred D., 1993. "Organizational Capabilities and Industrial Restructuring: A Historical Analysis," Journal of Comparative Economics, Elsevier, vol. 17(2), pages 309-337, June.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Guido Friebel & Gerard McCullough & Laura Padilla Angulo, 2014. "Patterns of Restructuring The US Class 1 Railroads from 1984 to 2004," Journal of Transport Economics and Policy, University of Bath, vol. 48(1), pages 115-135, January.
    2. Marko Lah & Tjaša Redek & Andrej Sušjan, 2008. "The Changing Role of the Labour Market within the EMU: the Case of Slovenia," Transition Studies Review, Springer;Central Eastern European University Network (CEEUN), vol. 15(2), pages 375-387, September.
    3. Polona Domadenik & Janez Prasnikar & Jan Svejnar, 2008. "How to Increase R&D in Transition Economies? Evidence from Slovenia," Review of Development Economics, Wiley Blackwell, vol. 12(1), pages 193-208, February.
    4. Jaan Masso & Almas Heshmati, 2004. "The optimality and overuse of labour in Estonian manufacturing enterprises," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 12(4), pages 683-720, December.
    5. Curtiss, Jarmila & Ratinger, Tomáš & Medonos, Tomáš, 2012. "Ownership and Investment Behaviour in Transition Countries: A Case Study of Collective and Corporate Farms in the Czech Republic," Factor Markets Working Papers 121, Centre for European Policy Studies.
    6. Curtiss, Jarmila & Ratinger, Tomas & Medonos, Tomas, 2012. "Ownership and Investment Behaviour in Transition Countries: A Case Study of Collective and Corporate Farms in the Czech Republic," Working papers 122841, Factor Markets, Centre for European Policy Studies.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Klara Sabirianova Peter & Jan Svejnar & Katherine Terrell, 2012. "Foreign Investment, Corporate Ownership, and Development: Are Firms in Emerging Markets Catching Up to the World Standard?," The Review of Economics and Statistics, MIT Press, vol. 94(4), pages 981-999, November.
    2. Jan Hanousek & Ev??en Ko?enda & Jan Svejnar, 2004. "Ownership, Control and Corporate Performance After Large-Scale Privatization," William Davidson Institute Working Papers Series 2004-652, William Davidson Institute at the University of Michigan.
    3. Jan Hanousek & Evžen Kočenda & Jan Svejnar, 2007. "Origin and concentration," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 15(1), pages 1-31, January.
    4. Jan Svejnar & Evzen Kocenda, 2002. "The Effects of Ownership Forms and Concentration on Firm Performance after Large-Scale Privatization," William Davidson Institute Working Papers Series 471, William Davidson Institute at the University of Michigan.
    5. Polona Domadenik & Janez Prasnikar & Jan Svejnar, 2008. "How to Increase R&D in Transition Economies? Evidence from Slovenia," Review of Development Economics, Wiley Blackwell, vol. 12(1), pages 193-208, February.
    6. 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.
    7. Bhaumik, Sumon Kumar & Estrin, Saul, 2007. "How transition paths differ: Enterprise performance in Russia and China," Journal of Development Economics, Elsevier, vol. 82(2), pages 374-392, March.
    8. Jan Svejnar, 2002. "Transition Economies: Performance and Challenges," Journal of Economic Perspectives, American Economic Association, vol. 16(1), pages 3-28, Winter.
    9. Zorica Kalezić, 2015. "Ownership Concentration and Firm Performance in Transition Economies: Evidence from Montenegro," Journal of Central Banking Theory and Practice, Central bank of Montenegro, vol. 4(3), pages 5-64.
    10. Sumon Bhaumik & Saul Estrin, 2003. "Why Transition Paths Differ: Russian and Chinese Enterprise Performance Compared," William Davidson Institute Working Papers Series 525, William Davidson Institute at the University of Michigan.
    11. Svejnar, Jan, 2007. "China in Light of the Performance of Central and East European Economies," CEPR Discussion Papers 6320, C.E.P.R. Discussion Papers.
    12. Saul Estrin & Alan A. Bevan & Boris Kuznetsov & Mark E. Schaffer & Manuela Angelucci & Julian Fennema & Giovanni Mangiarotti, 2001. "The Determinants of Privatised Enterprise Performance in Russia," William Davidson Institute Working Papers Series 452, William Davidson Institute at the University of Michigan.
    13. John Bennett & Saul Estrin & James Maw & Giovanni Urga, 2004. "Privatisation Methods and Economic Growth in Transition Economies," Working Papers 2004.105, Fondazione Eni Enrico Mattei.
    14. Peng, Mike W. & Buck, Trevor & Filatotchev, Igor, 2003. "Do outside directors and new managers help improve firm performance? An exploratory study in Russian privatization," Journal of World Business, Elsevier, vol. 38(4), pages 348-360, November.
    15. Jozef Konings & Patrick Van Cayseele & Frederic Warzynski, 2005. "The Effects of Privatization and Competitive Pressure on Firms' Price-Cost Margins: Micro Evidence from Emerging Economies," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 124-134, February.
    16. Dietrich Earnhart & Lubomir Lizal, 2002. "Effects of Ownership and Financial Status on Corporate Environmental Performance," CERGE-EI Working Papers wp203, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    17. Koman, Matjaž & Laki?evi?, Milan & Prašnikar, Janez & Svejnar, Jan, 2013. "Asset Stripping, Rule of Law and Firm Survival: The Hoff-Stiglitz Model and Mass Privatization in Montenegro," IZA Discussion Papers 7821, Institute of Labor Economics (IZA).
    18. Szarzec, Katarzyna & Dombi, Ákos & Matuszak, Piotr, 2021. "State-owned enterprises and economic growth: Evidence from the post-Lehman period," Economic Modelling, Elsevier, vol. 99(C).
    19. Earnhart, Dietrich & Lizal, Lubomir, 2006. "Effects of ownership and financial performance on corporate environmental performance," Journal of Comparative Economics, Elsevier, vol. 34(1), pages 111-129, March.
    20. Jan Svejnar, 2002. "Assistance to the Transition Economies : Were There Alternatives?," World Bank Publications - Books, The World Bank Group, number 20232, December.

    More about this item

    Keywords

    Strategic restructuring; defensive restructuring; firms on transition; employment; investment; employee ownership and control;
    All these keywords.

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wdi:papers:2003-541. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: WDI (email available below). General contact details of provider: https://edirc.repec.org/data/wdumius.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.