IDEAS home Printed from
   My bibliography  Save this paper

The Failure of Government-led Program of Corporate Reorganization in Romania


  • Simeon Djankov
  • Kosali Ilayperuma


We provide the first comprehensive cost-benefit analysis of government-led reorganization programs for financially distressed firms in transition economies. The study is based on empirical evidence on the programs in Albania, Arinenia, Bulgaria, FYR Macedonia, Romania, Kazakhstan, Kyrgyz Republic, and Uzbekistan, with a particular focus on the Romanian program which is the only completed program to date. Our results indicate that the reorganization program failed to deliver any tangible improvements in the operational performance of firms. We also show that firms included in the program were faced with softer budget constraints than their comparators outside the program. Finally, we show that the cost of the program equaled three years of salaries for all workers in reorganized firms. The use of this money as severance pay for workers may have eliminated the pressure for government support and made it easier to liquidate or privatize firms. These findings question the feasibility for creating workable reorganization programs under government auspices.

Suggested Citation

  • Simeon Djankov & Kosali Ilayperuma, 1997. "The Failure of Government-led Program of Corporate Reorganization in Romania," William Davidson Institute Working Papers Series 139, William Davidson Institute at the University of Michigan.
  • Handle: RePEc:wdi:papers:1997-139

    Download full text from publisher

    File URL:
    Download Restriction: no

    References listed on IDEAS

    1. Gérard Roland & Thierry Verdier, 1999. "Transition and the output fall," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(1), pages 1-28, March.
    2. Wei Li, 1999. "A Tale of Two Reforms," RAND Journal of Economics, The RAND Corporation, vol. 30(1), pages 120-136, Spring.
    3. Lau, Lawrence J. & Qian, Yingyi & Roland, Gerard, 1997. "Pareto-improving economic reforms through dual-track liberalization," Economics Letters, Elsevier, vol. 55(2), pages 285-292, August.
    4. Olivier Blanchard & Michael Kremer, 1997. "Disorganization," The Quarterly Journal of Economics, Oxford University Press, vol. 112(4), pages 1091-1126.
    5. Sicular, Terry, 1988. "Plan and Market in China's Agricultural Commerce," Journal of Political Economy, University of Chicago Press, vol. 96(2), pages 283-307, April.
    6. Yuanzheng Cao & Yingyi Qian & Barry R. Weingast, 1999. "From federalism, Chinese style to privatization, Chinese style," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 7(1), pages 103-131, March.
    7. Jinglian, Wu & Renwei, Zhao, 1987. "The dual pricing system in China's industry," Journal of Comparative Economics, Elsevier, vol. 11(3), pages 309-318, September.
    8. McMillan, John & Naughton, Barry, 1992. "How to Reform a Planned Economy: Lessons from China," Oxford Review of Economic Policy, Oxford University Press, vol. 8(1), pages 130-143, Spring.
    9. Justin Yifu Lin, Fang Cai, and Zhou Li, 1996. "The Lessons of China's Transition to a Market Economy," Cato Journal, Cato Journal, Cato Institute, vol. 16(2), pages 201-231, Fall.
    10. Kevin M. Murphy & Andrei Shleifer & Robert W. Vishny, 1992. "The Transition to a Market Economy: Pitfalls of Partial Reform," The Quarterly Journal of Economics, Oxford University Press, vol. 107(3), pages 889-906.
    11. Sachs, J.D. & Woo, W.T., 1994. "Structural Factors in the Economic Reforms of China, Eastern Europe and the Former Soviet Union," Papers 94-01, California Davis - Institute of Governmental Affairs.
    12. Lin, Justin Yifu, 1992. "Rural Reforms and Agricultural Growth in China," American Economic Review, American Economic Association, vol. 82(1), pages 34-51, March.
    13. Theodore Groves & Yongmiao Hong & John McMillan & Barry Naughton, 1994. "Autonomy and Incentives in Chinese State Enterprises," The Quarterly Journal of Economics, Oxford University Press, vol. 109(1), pages 183-209.
    Full references (including those not matched with items on IDEAS)

    More about this item


    bankruptcy; transition economies; financial discipline;

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

    NEP fields

    This paper has been announced in the following NEP Reports:


    Access and download statistics


    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:wdi:papers:1997-139. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (WDI). General contact details of provider: .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.