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

Abstract

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 (

Economics, ideas or institutions? Agencification through government-owned enterprises in illiberal contexts: The case of Hungary

“…Much of the available literature on Hungary’s—and, in a broader sense, that of post-communist countries—GOE sector does not focus so much on the proliferation of GOEs. Rather, reflecting the key challenges of transforming their Socialist era state-owned economy to a market economy, they concentrate on privatization processes (Brown et al, 2016; Mihályi, 1998) and the economic efficiency of GOEs (Brown et al, 2006).…”

The Motives for Issuing Exchangeable Bonds in the Privatization of State‑Owned Enterprises

“…Several studies documenting smaller productivity and value destruction in state-owned firms provide arguments for reducing public ownership and changing corporate governance in SOEs (Harrison et al 2019). Such action may primarily support the business management process and positively affect their financial results (Djankov and Murrell 2002;Brown, Earle, and Telegdy 2004;2016;Estrin et al 2009). SOEs significant inefficiency and poor performance can be explained by various factors, including strong political interference in the decision-making process of political-oriented managers (Shleifer and Vishny 1994;Boycko, Shleifer, and Vishny 1996;Sheshinski and López-Calva 2003) or inadequate monitoring of management, which incentivizes them to follow their own objectives (Vickers and Yarrow 1991).…”