Political Selection of Firms Into Privatization Programs. Evidence From Romanian Comprehensive Data

Szentpéteri, Ádám; Telegdy, Álmos

doi:10.1111/j.1468-0343.2009.00364.x

Cited by 7 publications

(8 citation statements)

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“…Gupta et al (2008), in a recent analysis of government priorities and firm sequencing in the Czech mass privatization program, report "strong evidence that the Czech government privatized first firms that were more profitable" (204). Szentpéteri and Telegdy (2010) report similar results in a study of Romanian mass privatization, though they note that an overarching objective of the government in selecting firms was employment preservation, outweighing even potential efficiency gains from privatization. To our knowledge, no existing research or data have suggested that the firms with the least potential were selectively privatized under mass privatization programs.…”

Section: Medvedev 2000; Ganev 2007supporting

confidence: 54%

Mass Privatization, State Capacity, and Economic Growth in Post-Communist Countries

2012

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Why did the transition from socialism to capitalism result in improved growth in some countries and significant economic decline in others? Three main arguments have been advanced: (1) successful countries rapidly implemented neoliberal policies; (2) failures were not due to policies but to poor institutional environments; and (3) policies were counterproductive because they damaged the state. We present a state-centered theory, and empirically demonstrate for the first time one of several possible mechanisms linking neoliberal policies to poor economic performance: mass privatization programs, where implemented, created a massive fiscal shock for post-communist governments, thereby undermining the development of private sector governance institutions and severely exacerbating the transformational recession. We perform cross-national panel regressions for a sample of 30 post-communist countries between 1990 and 2000, and find that mass privatization programs negatively affected economic growth, state capacity, and property rights protection. These findings are corroborated with firm-level data from a representative survey of managers in 3,890 companies operating in 24 post-communist countries. We show that within countries which implemented mass-privatized programs, newly privatized firms were substantially less likely to engage in industrial restructuring but considerably more likely to use barter and accumulate tax arrears than their state-owned counterparts.3 Between 1989 and 1991, the Soviet empire disintegrated. Western-trained neoliberal economists provided the blueprint for constructing capitalism amidst the ruins of state socialism, advocating "shock therapy": rapid privatization, liberalization of prices and trade, and fiscal and monetary austerity (UNDP 1999). Although sociologists and economists critiqued these policies and their pace (e.g. Stark 1992; Burawoy and Krotov 1992; Kornai 1990 Kornai , 1995, a group of neoclassical economists at Harvard believed that they were necessary; this perspective was also dominant among economists working for international financial institutions (Cohen 2001;Wedel 2001). 1 As Lawrence Summers put it, "Despite economists' reputation for never being able to agree on anything, there is a striking degree of unanimity in the advice that has been provided to the nations of Eastern Europe and the former Soviet Union. ... [P]rivatization, stabilization, and liberalization ... must all be completed as soon as possible " (1994: 252-253). Most postcommunist countries implemented versions of the shock therapy package. Of the three major policies, privatization proved to be the most difficult to implement and yielded the greatest variance in outcomes.Despite initial optimism, economic performance was disastrous in most post-communist countries, as shown in Figure 1. Between 1990 and 1996, per [Insert Figure 1 here]To evaluate the competing explanations of this variation, we first review the initial theories of transition and the leading 'post-mortem' explanations ...

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Section: Medvedev 2000; Ganev 2007supporting

confidence: 54%

Mass Privatization, State Capacity, and Economic Growth in Post-Communist Countries

2012

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“…Wages have a negative effect on privatization in India and China (Dinc and Gupta, 2011;Liu et al, 2007) while we find that firms with low wages are more likely to remain in state ownership. Finally, Szentpéteri and Telegdy (2010) study Romania by taking advantage of the information on actual privatizations and simulating the possible effects on employment, efficiency and wages, and find similar results to those presented in this article.…”

Section: Empirical Setting and Resultssupporting

confidence: 75%

“…(2007) in China, and Dinc and Gupta (2011) in India. Szentpéteri and Telegdy (2010) study the same question in Romania by estimating the effect of privatization from real data and constructing a counterfactual effect of non‐privatizable firms. De Fraja and Roberts (2009) and Gupta et al.…”

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confidence: 99%

“…7 7 We need to make assumptions about the relation of post‐privatization behaviour and pre‐privatization firm characteristics because we use only pre‐privatization data. Using a similar dataset on Romanian firms, Szentpéteri and Telegdy (2010) study the same question by estimating the effect of privatization in 1996 and then simulating it on both privatizable and non‐privatizable companies. While such a research design does not need to hinge on such assumptions, its disadvantage is, however, that it assumes that the privatization effects are the same among the actually privatized and not privatized enterprises.…”

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confidence: 99%

“…Studies using firm-level data to test the selection of firms into privatization programmes includeGuo and Yao (2005) andLiu et al (2007) in China, andDinc and Gupta (2011) in India Szentpéteri and Telegdy (2010). study the same question in Romania by estimating the effect of privatization from real data and constructing a counterfactual effect of non-privatizable firms.…”

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Political objectives and privatization decisions

Szentpéteri¹,

Telegdy²

2011

Economics of Transition

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In early Romanian privatization a group of firms was explicitly banned from privatization. We use this institutional feature to test which factors contributed to the selection of firms for long‐term state ownership, and find that politicians sheltered from privatization large and inefficient firms which paid low wages and had high overdue payments. These results are consistent with minimization of employment losses, even if efficiency enhancement of privatization had to be sacrificed. We conjecture that the unfavourable economic conditions bringing large employment losses motivated Romanian politicians to fear the possible negative employment effects of privatization.

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Where does privatization work? Understanding the heterogeneity in estimated firm performance effects

Brown

Earle

Telegdy

2016

Journal of Corporate Finance

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Why do the reported effects of privatization on firm performance vary so much? This paper provides new estimates of these effects and tests potential explanations for heterogeneity using comprehensive, long-panel data for 70,000 firms in five East European economies. We estimate that privatization raises measures of profitability, productivity, and growth by about 5-12% on average, but with substantial variation across countries and time periods. Analyzing heterogeneity in privatization effectiveness, we find little systematic role for firm size, financial dependence, exchange listing, or technological complexity, but important variation by fraction privatized, ownership concentration, firm quality, and the macroeconomic and institutional environment.1 Other early multi-country studies include Boubakri and Cosset (1998), , Frydman et al. (1999), and Claessens and Djankov (2002. Brown, Earle, and Telegdy (2006) represents a paper reporting a negative privatization effect for one country, Russia, although Brown, Earle, and Gehlbach (2013) find the Russian effect becomes positive in 2003-2005, as discussed below. The extensive literature estimating an average privatization effect consists primarily of studies of either single countries or small samples from many countries; excellent surveys can be found in Megginson and Netter (

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Political Selection of Firms Into Privatization Programs. Evidence From Romanian Comprehensive Data

Cited by 7 publications

References 41 publications

Mass Privatization, State Capacity, and Economic Growth in Post-Communist Countries

Mass Privatization, State Capacity, and Economic Growth in Post-Communist Countries

Political objectives and privatization decisions

Where does privatization work? Understanding the heterogeneity in estimated firm performance effects

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