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Restructuring Enterprises in Eastern Europe


  • Carlin, Wendy
  • Mayer, Colin


The enterprise sectors of Eastern Europe are undergoing fundamental reform. This article evaluates alternative forms of corporate restructuring. It emphasizes differences in the sequence in which reforms are undertaken in different countries. In some countries, restructuring is being undertaken by the state before privatization; in some, restructuring is delegated to private-sector institutions before shares are offered to the public at large; and in others, public offers of shares are preceding restructuring. The article suggests that the recent theoretical literature on corporate ownership and vertical integration provides a useful framework for evaluating alternative sequences of reform. This points to four factors as being central to the reform process: contractual incompleteness between the state, investors and managers; complementarity between the assets of different stakeholders; the relative importance of assets; and the relative abilities of different stakeholders. The continuing role for the state in Eastern Europe is attributable to difficulties of contracting between the state and private firms and the complementarity between the assets of state and firms. The slow pace of privatization is due to poor public finances and inefficient bureaucracies. There is one country in which a substantial amount of restructuring has been undertaken by both the state and the private sector, however: East Germany. This paper documents in some detail the privatization process in East Germany. It notes that five parties have been central to the reform process: the state, the Treuhandanstalt, banks, Western companies and the incumbent management. It records a gradual transfer of control from the state to the management of firms. It argues that the central role played by banks and companies in restructuring reflects an important complementarity between their assets and those of former state-owned enterprises, and the fact that they can offer valuable advice to East German management. This raises the question of what East European countries that do not possess institutions with equivalent skills and resources should do. The experience of East Germany suggests that careful attention should be given to the governance of state agencies and private-sector institutions. The role of financial institutions in funding restructuring should be supplemented by non-financial companies providing management advice. Risk capital will not be available, initially, until East European enterprises have acquired adequate collateral or reputations. In the mean time, international agencies will play a central role in funding the transition.

Suggested Citation

  • Carlin, Wendy & Mayer, Colin, 1992. "Restructuring Enterprises in Eastern Europe," CEPR Discussion Papers 700, C.E.P.R. Discussion Papers.
  • Handle: RePEc:cpr:ceprdp:700

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    Cited by:

    1. Christian Weller, 2000. "Financial Liberalization, Multinational Banks and Credit Supply: The case of Poland," International Review of Applied Economics, Taylor & Francis Journals, vol. 14(2), pages 193-211.
    2. Sweder J. G. van Wijnbergen & Tim Willems, 2016. "Learning Dynamics and Support for Economic Reforms: Why Good News Can Be Bad," World Bank Economic Review, World Bank Group, vol. 30(1), pages 1-23.
    3. Stefan Bojnec & Ana Xavier, 2004. "Entry and exit in transition economies: the Slovenian manufacturing sector," Post-Communist Economies, Taylor & Francis Journals, vol. 16(2), pages 191-214.
    4. Elena Yusupova, 2006. "Information Asymmetry, Share Mispricing and the Coordination Problem: Investor Portfolio Choice in Czech Voucher Privatization," CERGE-EI Working Papers wp301, The Center for Economic Research and Graduate Education - Economics Institute, Prague.
    5. Andrea Boltho & Wendy Carlin & Pasquale Scaramozzino, 1999. "Will East Germany become a new Mezzogiorno?," Chapters,in: Economic Growth and Change, chapter 13 Edward Elgar Publishing.
    6. Wendy Carlin & Peter Richthofen, 1995. "Finance, economic development and the transition: the East German case," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(2), pages 169-195, June.
    7. Hitchens, D. M. W. N. & Birnie, J. E. & Wagner, K., 1996. "A matched plant comparison of productivity in East and West Germany: Transition to the market economy," Omega, Elsevier, vol. 24(3), pages 321-335, June.
    8. S. David Young, 1999. "From plan to market: financial statements and economic transition in the East German enterprise," European Accounting Review, Taylor & Francis Journals, vol. 8(1), pages 157-189.
    9. Schmieding, Holger & Buch, Claudia, 1992. "Better banks for Eastern Europe," Kiel Discussion Papers 197, Kiel Institute for the World Economy (IfW).
    10. Djankov, Simeon, 1999. "The Enterprise Isolation Program in Romania," Journal of Comparative Economics, Elsevier, vol. 27(2), pages 281-293, June.
    11. Samuel Kortum, 2004. "An R&D Roundtable," Economics of Innovation and New Technology, Taylor & Francis Journals, vol. 13(4), pages 349-363.
    12. Wendy Carlin & Colin Mayer, 1994. "The Treuhandanstalt: Privatization by State and Market," NBER Chapters,in: The Transition in Eastern Europe, Volume 2: Restructuring, pages 189-214 National Bureau of Economic Research, Inc.
    13. Yanhua ZHANG, 2005. "Collusion and Commitment in Bank Bailout," Industrial Organization 0509011, EconWPA.
    14. Djankov, Simeon, 1998. "Enterprise isolation programs in transition economies : evidence from Romania," Policy Research Working Paper Series 1952, The World Bank.
    15. Sweder van Wijnbergen & Tim Willems, 2012. "Learning Dynamics and the Support for Economic Reforms: Why Good News can be Bad," Tinbergen Institute Discussion Papers 12-043/2, Tinbergen Institute.
    16. Wyplosz, Charles, 2000. "Ten Years of Transformation: Macroeconomic Lessons," CEPR Discussion Papers 2254, C.E.P.R. Discussion Papers.
    17. Gerard Rpland, 2001. "The Political Economy of Transition," William Davidson Institute Working Papers Series 413, William Davidson Institute at the University of Michigan.
    18. Antje Hildebrandt, 2002. "Too many to fail? Inter-enterprise arrears in transition economies," Development and Comp Systems 0212001, EconWPA.
    19. Luoana D. Santarossa, 2001. "Arrears as a Sign of Financial Repression in Transition Economies - The Case of Romania," CERT Discussion Papers 0104, Centre for Economic Reform and Transformation, Heriot Watt University.
    20. Buch, Claudia M., 1993. "An institutional approach to banking reform in Eastern Europe," Kiel Working Papers 560, Kiel Institute for the World Economy (IfW).

    More about this item


    Eastern Europe; Privatization; Restructuring; Treuhandanstalt;

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
    • P11 - Economic Systems - - Capitalist Systems - - - Planning, Coordination, and Reform
    • P12 - Economic Systems - - Capitalist Systems - - - Capitalist Enterprises


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