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.
Highlights
An enduring puzzle in research on the firm performance effects of privatization is why there is such a wide range in the reported estimates
Sappington and Stiglitz (1987) developed a model of public vs. private ownership assuming a welfaremaximizing government with imperfect information, while Shleifer and Vishny (1994) and Bocyko et al (1996) analyzed theoretical models where political influences on firm behavior are reduced under private ownership. +DUW HW DO¶V WKHRUHWLFDO PRGHO VXJJHVWV WKDW SULYDWH owners have greater incentives to pursue investment to innovate and reduce costs
Too little data existed on ownership changes and their consequences to shed light on their importance to firm performance
Summary
An enduring puzzle in research on the firm performance effects of privatization is why there is such a wide range in the reported estimates. The magnitudes vary widely across studies, with some large and some small estimates, some cases of a zero effect, and a few where the effects are estimated to be negative Possible explanations for this variability include differences in the design of privatization programs, in the types of firms privatized, or in other aspects of the economic environment. Again, the differences may result from variation in the types of data available for different countries, and in the outcome variables and estimation methods used in different studies. It is uncertain whether the variability represents genuine differences or merely reflects the constraints and choices of different researchers estimating the privatization-performance relationship.. It is uncertain whether the variability represents genuine differences or merely reflects the constraints and choices of different researchers estimating the privatization-performance relationship. if the differences are genuine, it remains unclear what underlying characteristics of policies, firms, and the environment may account for these differences
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