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Political Selection Of Firms Into Privatization Programs. Evidence From Romanian Comprehensive Data

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  • ÁDÁM SZENTPÉTERI
  • ÁLMOS TELEGDY

Abstract

Exploiting a unique institutional feature of early Romanian privatization, when a group of firms was explicitly barred from privatization and another was partially privatized by management-employee buyouts, we test how politicians select firms into privatization programs. Using comprehensive firm data, we estimate the relation between preprivatization firm characteristics - the information known to politicians at the time of decision-making - and the effect of privatization on employment, efficiency, and wages. With the estimated coefficients we simulate the effect of privatization on non-privatizable and privatizable firms. We find that politicians expected privatization to increase employment in the privatizable group by 7%-10%, while to decrease it in the non-privatizable group by 10%-30%, depending on the first-stage estimation method, ordinary least squares with or without matching. We do not find such discrepancies in the expected change in firm efficiency; the simulated efficiency effect of privatization is large and positive for both groups of firms, and it is 52%-65% for non-privatizable and 41%-43% for privatizable firms. The analysis does not support the hypothesis that wages played an important role in privatization decisions. Our study suggests that employment concerns played the key role in selecting firms for privatization, even if efficiency gains had to be sacrificed. Copyright 2010 Blackwell Publishing Ltd.

Suggested Citation

  • Ádám Szentpéteri & Álmos Telegdy, 2010. "Political Selection Of Firms Into Privatization Programs. Evidence From Romanian Comprehensive Data," Economics and Politics, Wiley Blackwell, vol. 22(3), pages 298-328, November.
  • Handle: RePEc:bla:ecopol:v:22:y:2010:i:3:p:298-328
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    Cited by:

    1. Brown, David J. & Earle, John S. & Telegdy, Almos, 2016. "Where does privatization work? Understanding the heterogeneity in estimated firm performance effects," Journal of Corporate Finance, Elsevier, vol. 41(C), pages 329-362.

    More about this item

    JEL classification:

    • L33 - Industrial Organization - - Nonprofit Organizations and Public Enterprise - - - Comparison of Public and Private Enterprise and Nonprofit Institutions; Privatization; Contracting Out
    • P26 - Economic Systems - - Socialist Systems and Transition Economies - - - Political Economy

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