The Impact of Privatisation on the Performance of Medium and Large Industrial Enterprises

The study, based on panel data from 198 industrial enterprises in the Sverdlovsk Oblast during 1992-1996, provides empirical evidence on the impact of privatisation upon the performance of medium, large and extra-large industrial enterprises. The study shows that privatisation "on average" produces performance improvements only in operating profit margin and, to some extent, in the productivity of labour. We revealed that methods (options) of privatisation had not only a positive but also a negative impact on the performance of enterprises. The state seems to be a passive shareholder. However, our results suggest that not only full privatisation but also majority state ownership is preferable to a state minority stakeholding, possibly because of the absence of a monitoring shareholder in the latter case with which to prevent managers achieving their own objectives at the expense of other shareholders. That is why the state should keep majority control over privatised enterprises or diminish its stake below 5% in order to avoid the negative drop in performance results caused by the absence of a monitoring shareholder.