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Ownership and corporate control in Poland : why state firms defied the odds

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  • Pinto, Brian
  • van Wijnbergen, Sweder

Abstract

Survey results in Poland indicate that hard budgets and import comeption can spur state firms to adjust even when privatization lags behind. As they examine the underpinning of Polish reform, the authors address the key question of why managers instigated such adjustment. They examine how corporate ownership and control influence the behavior of state firms, as illuminated by the following survey findings and conclusions: (a) Contrary to expectations, state firms took painful adjustment measures. Enterprise managers firmly believed that privatization was coming. This belief led them to manage better, not worse; a private sector based economy means a market for managers and a premium on skilled management. (b) The excess wage tax (the much criticized"Popiwek"scheme) did restrain wage-setting behavior, judging from the wage-setting equations presented by the authors. (c) Essential to the good performance of state industries is an end to open-ended subsidies. Subsidies, rather than helping firms adjust, give them incentives to continue their past behavior and destroy any mechanism of control other claim-holders might have. (d) Commercial banks, the Polish experience shows, can be made to exercise governance over state firms. Without effective takeover mechanisms, withholding funds is their most powerful instrument. That instrument is made powerless if firms, pressured to adjust by banks, can turn to the government themselves. Banks themselves started to respond appropriately- and to play a powerful role in discipline enterprises - only after their own governance and control/incentive mechanisms had been reformed as part of the banking reforms of the fourth quarter of 1991.

Suggested Citation

  • Pinto, Brian & van Wijnbergen, Sweder, 1994. "Ownership and corporate control in Poland : why state firms defied the odds," Policy Research Working Paper Series 1308, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1308
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    References listed on IDEAS

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    1. Sweder van Wijnbergen, 1993. "Enterprise reform in Eastern Europe," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 1(1), pages 21-38, January.
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    Citations

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    Cited by:

    1. Budina, Nina & Garretsen, Harry & Jong, Eelke de, 1999. "Liquidity constraints and investment in transition economies : the case of Bulgaria," Research Report 00E05, University of Groningen, Research Institute SOM (Systems, Organisations and Management).
    2. Raiser, Martin, 1995. "Decentralisation, autonomy and efficiency: Inconsistent reforms and enterprise performance in China," Kiel Working Papers 689, Kiel Institute for the World Economy (IfW Kiel).
    3. Yurii Perevalov & Ilya Gimadii & Vladimir Dobrodei, 2000. "Does Privatisation Improve Performance of Industrial Enterprises? Empirical Evidence from Russia," Post-Communist Economies, Taylor & Francis Journals, vol. 12(3), pages 337-363.
    4. Claessens,Constantijn A. & Djankov, Simeon, 1998. "Politicians and firms in seven central and eastern European countries," Policy Research Working Paper Series 1954, The World Bank.
    5. Frydman, Roman & Gray, Cheryl W. & Hessel, Marek & Rapaczynski, Andrzej, 1997. "Private ownership and corporate performance : some lessons from transition economies," Policy Research Working Paper Series 1830, The World Bank.
    6. Steven M. Fries, 1995. "Enterprise Restructuring and Control in Transition Economies," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 3(1), pages 115-121, March.
    7. Ann P. Bartel & Ann E. Harrison, 1999. "Ownership versus Environment: Why are Public Sector Firms Inefficient?," NBER Working Papers 7043, National Bureau of Economic Research, Inc.
    8. Q. Fan & U. Lee & M.E. Schaffer, 1996. "Firms, Banks and Credit in Russia," CERT Discussion Papers 9609, Centre for Economic Reform and Transformation, Heriot Watt University.
    9. Frydman, R. & Hessel, M. & Rapaczynski, A., 2000. "Why Ownership Matters? Entrepreneurship and the Restructuring of Enterprises in Central Europe," Working Papers 00-03, C.V. Starr Center for Applied Economics, New York University.
    10. Brown, J David & Earle, John, 2001. "Privatization, Competition and Reform Strategies: Theory and Evidence from Russian Enterprise Panel Data," CEPR Discussion Papers 2758, C.E.P.R. Discussion Papers.
    11. Berglof, Erik & Roland, Gerard, 1998. "Soft Budget Constraints and Banking in Transition Economies," Journal of Comparative Economics, Elsevier, vol. 26(1), pages 18-40, March.
    12. Ann P. Bartel & Ann E. Harrison, 2005. "Ownership Versus Environment: Disentangling the Sources of Public-Sector Inefficiency," The Review of Economics and Statistics, MIT Press, vol. 87(1), pages 135-147, February.
    13. Djankov, Simeon & Pohl, Gerhard, 1997. "The restructuring of large firms in Slovakia," Policy Research Working Paper Series 1758, The World Bank.
    14. Roland, Gerard & Sekkat, Khalid, 2000. "Managerial career concerns, privatization and restructuring in transition economies," European Economic Review, Elsevier, vol. 44(10), pages 1857-1872, December.
    15. Nigel Harris & David Lockwood, 1997. "The war-making state and privatisation," Journal of Development Studies, Taylor & Francis Journals, vol. 33(5), pages 597-634.
    16. Jacek Kochanowicz & Piotr Kozarzewski & Richard Woodward, 2005. "Understanding Reform: The Case of Poland," CASE Network Reports 0059, CASE-Center for Social and Economic Research.
    17. Dobrodey Vladimir & Gimadi Ilya & Perevalov Yuri, 2001. "The Impact of Privatisation on the Performance of Medium and Large Industrial Enterprises," EERC Working Paper Series 2k/01e, EERC Research Network, Russia and CIS.
    18. Frydman, Roman & Gray, Cheryl & Hessel, Marek P. & Rapaczynski, Andrzej, 1998. "When Does Privatization Work? The Impact of Private Ownership on Corporate Performance in the Transition Economies," Working Papers 98-32, C.V. Starr Center for Applied Economics, New York University.
    19. repec:dgr:rugsom:00e05 is not listed on IDEAS
    20. Josef C. Brada, 1996. "Privatization Is Transition--Or Is It?," Journal of Economic Perspectives, American Economic Association, vol. 10(2), pages 67-86, Spring.
    21. Brauer, Holger & Falk, Martin & Raiser, Martin, 1996. "Labour markets in Poland and Hungary five years from the start of transition: Evidence from monthly data," Kiel Working Papers 742, Kiel Institute for the World Economy (IfW Kiel).
    22. Gerald A. McDermott, 2004. "The Politics of Institutional Learning and Creation: Bank Crises and Supervision in East Central Europe," William Davidson Institute Working Papers Series wp726, William Davidson Institute at the University of Michigan.

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    More about this item

    Keywords

    Economic Theory&Research; Municipal Financial Management; Environmental Economics&Policies; Public Sector Economics&Finance; Banks&Banking Reform;
    All these keywords.

    JEL classification:

    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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