Abstract
**: This paper employs a multinomial logit model to examine what determines the choice of a particular firm for a given privatisation method. A variety of hypotheses about possible determinants of ownership change are tested using an extensive data set for Polish manufacturing at the beginning of transition. The results at a firm as well as at a sector level give strong support to the hypothesis of the importance of resource constraints on the choice of ownership. Large firms with high financing requirement are more likely to be owned by outsiders. High sectoral capital intensity discourages small insider owned firms while high degree of product differentiation is a constraint for different investors, with the exception of outsiders. We also find that firm quality, measured by profitability and exporting outside the Soviet block, appeals to all types of investors but, additionally, privatisation offers outsiders ways of entering sectors with substantial entry barriers.
Highlights
East European countries at the beginning of transition were characterised by a very small private sector
In this paper we focus on the process of selection of state-owned enterprises for privatisation and the choice of privatisation methods
A multinomial logit model is employed to examine what determines the choice of a particular firm for a given privatisation method
Summary
East European countries at the beginning of transition were characterised by a very small private sector. Initial dramatic increases in the size of the private sector have to be attributed mainly to privatisation in the narrow sense. The initial characteristics of the privatised firms and those remaining in the statesector are of vital importance in making future comparisons between the performance of the private and state sector. In this paper we focus on the process of selection of state-owned enterprises for privatisation and the choice of privatisation methods. A multinomial logit model is employed to examine what determines the choice of a particular firm for a given privatisation method. Both firm-level as well as industry specific characteristics are examined in order to determine their impact on ownership change.
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