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Political Selection of Firms into Privatization Programs - Evidence from Romanian Comprehensive Data

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  • Adam Szentpeteri

    () (Central European University, Eotvos Lorand University)

  • Almos Telegdy

    () (Institute of Economics - Hungarian Academy of Sciences)

Abstract

Exploiting a unique institutional feature of the early Romanian privatization setup, when a group of firms was explicitly barred from any privatization, we test how politicians select firms into privatization programs. Using a comprehensive dataset that includes all firms inherited from socialism, we estimate the relation between pre-privatization firm characteristics (the information known to politicians at the time of decision making) and the effect of privatization on employment, efficiency and wages. We argue that other objectives, such as revenue maximization or bribe collection were of secondary importance in the early Romanian privatization. Using the estimated coefficients, we simulate the effect of privatization on non-privatizable and privatizable firms, including in the latter group both privatized and not privatized enterprises. The simulations show that politicians expected the reduction of employment by 5.2 percent of the non-privatizable group, as a consequence of privatization. Contrary to this expectation, employment in the privatizable group was likely to grow by the same proportion. We do not find such discrepancies in the expected change in firm efficiency, as the simulated efficiency effect of privatization is large and positive for both groups of firms, and it is around 40 percent. The analysis does not support the hypothesis that wages played an important role in privatization decisions. These results do not change qualitatively if the privatizable group is disaggregated into privatized and not privatized groups. Our study suggests that employment concerns played the key role in selecting firms for privatization, even if efficiency gains had to be sacrificed.

Suggested Citation

  • Adam Szentpeteri & Almos Telegdy, 2008. "Political Selection of Firms into Privatization Programs - Evidence from Romanian Comprehensive Data," IEHAS Discussion Papers 0826, Institute of Economics, Centre for Economic and Regional Studies, Hungarian Academy of Sciences.
  • Handle: RePEc:has:discpr:0826
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    References listed on IDEAS

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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

    Keywords

    Privatization; Government objectives; Firm behavior; Romania;

    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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