Restructuring of Large Firms in Slovakia

This paper examines case study evidence of large Slovak firms chosen to represent a wide range of initial conditions, privatization techniques and success with restructuring. We document the ownership changes and restructuring actions of firms. We then re-examine several hypotheses about firm restructuring in the light of this new evidence. In particular, we show that the majority of large Slovak firms have successfully restructured in the absence of foreign investors and government-led restructuring programs. The study also throws some new queries on the effectiveness of different privatization methods in enhancing corporate governance and improving access to skills and capital. We find that privatization to insiders through management-employee buy-outs did not hamper firm restructuring as the new owners (old managers) invested heavily in new technology, laid off substantial part of their workforce, sought foreign partnerships, and were prepared to sell controlling stakes to outsiders in return for fresh financial resources. The evidence also suggests that the mass privatization program did not result in weak corporate governance since it was followed by a rapid consolidation of ownership. Our findings support the view that the main objective of privatization programs should be the speedy transformation of ownership, not the selection of perfect owners.