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Ownership and Firm Performance After Large-Scale Privatization

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  • Kocenda, Evzen
  • Svejnar, Jan

Abstract

We analyse the effect of ownership on post-privatization performance in a virtually complete population of medium and large firms privatized in a model large-scale privatization economy (Czech Republic). We find that concentrated foreign ownership improves economic performance, but domestic private ownership does not, relative to state-owned firms. Foreign firms engage in strategic restructuring by increasing profit and sales, while domestic firms reduce sales and labour cost without increasing profit. Ownership concentration is associated with superior performance, thus providing support to the agency theory and contradicting theories stressing the positive effects of managerial autonomy and initiative. Our results are also consistent with the thesis that the presence of a large domestic stockholder may not result in a superior performance if this shareholder ‘loots’ the firm. We find support for the hypothesis that firms restructure by lowering and later increasing employment. The state as a holder of the golden share stimulates profitable restructuring, while pursuing a socially understandable employment objective in a period of rising unemployment. Our results hence depict the state in transition economies as a much more economically and socially beneficial agent that many recent theoretical studies.

Suggested Citation

  • Kocenda, Evzen & Svejnar, Jan, 2003. "Ownership and Firm Performance After Large-Scale Privatization," CEPR Discussion Papers 4143, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:4143
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    References listed on IDEAS

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    Keywords

    industrial organization; ownership; panel data; performance; privatization;

    JEL classification:

    • C33 - Mathematical and Quantitative Methods - - Multiple or Simultaneous Equation Models; Multiple Variables - - - Models with Panel Data; Spatio-temporal Models
    • D20 - Microeconomics - - Production and Organizations - - - General
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • G34 - Financial Economics - - Corporate Finance and Governance - - - Mergers; Acquisitions; Restructuring; Corporate Governance
    • L20 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - General

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