Insider Privatization and Careers - A Clinical Study of a Russian Firm in Transition

Abstract

Transition provides an unexplored opportunity to study how changes in ownership affect structure and human resource policies of firms. We investigate a unique data set (17 years, 1500 white collar workers) of a Russian insider-privatized firm. In contrast to conventional beliefs about insider-privatized firms, there is much evidence for restructuring. However, the firm becomes toploaded. There is massive hiring from the outside, in particular, for higher tiers in the hierarchy. As there is also less exit, in particular, from higher levels, previously existing career paths are blocked. This potentially distorts the incentives for investment in firm-specific human capital. We argue that weak property right enforcement may be the reason for our observations, and thus identify a novel channel through which institutions may affect firm efficiency.