Performance In Transition Economies Research Articles

Ownership Concentration and Firm Performance in Transition Economies: Evidence from Montenegro

Abstract The relationship between ownership concentration and firm performance has been the focal point of corporate governance literature and the subject of rather rich empirical literature. However, the current literature lacks uniformity and consensus regarding the nature and direction of this relationship. This research aims to contribute to this literature by investigating the relationship in a small and open transition economy of Montenegro. We use primary data1 from the period 2004-2008 to analyse, for the first time, the impact of ownership concentration on firm performance in Montenegro. The results support the hypothesis that high ownership concentration enables effective monitoring by investors to protect their interests; i.e. in the specific circumstances of transition, ownership structure may be (temporarily) used as a viable substitute for the still underdeveloped corporate governance framework.

Are pure or hybrid strategies right for new ventures in transition economies?

This article examines the role of strategic intensity or commitment to a chosen course of action, and the impact of pure versus hybrid competitive strategies on competitive performance in transition economies, using survey data ( N = 333) from Bulgaria. We find that strategic intensity is positively related to performance; firms that deviate from pure cost leadership or differentiation and achieve a balance on both dimensions report superior performance. In a post hoc analysis of our data, we find preliminary evidence that strategic intensity may act as a mediator of the relationship between strategic type and performance.

Innovation investment and economic performance in transition economies: Evidence from Slovenia

This research investigates the relationship between innovation expenditure and its economic performance in 2503 companies. The findings show higher innovation expenditure productivity in the group of Leaders; each euro invested in innovation yields EUR 13.90, but just EUR 7.70 in the group of Followers. ROE is 40% higher in Leaders. Recommendations are provided as to the improvement of business processes and results: financial investments in innovation should be increased in Followers, while simultaneously a substantial improvement in the efficiency of exploiting existing assets is essential. Companies should increase their expenditure on extramural R&D, acquisition of external knowledge (concept of open innovation model) and market introduction of innovations. Further on, we compared some financial data on Slovenian companies with EU average data. The results clearly indicate that Slovenian innovation expenditures are relatively high but not being applied optimally to achieve economic results that compare to the EU average.

Innovation investment and economic performance in transition economies: Evidence from Slovenia

Innovation investment and economic performance in transition economies: Evidence from Slovenia

Horvátország európai integrációja a makroökonómiai mutatók tükrében

The collapse of communist economies in Eastern Europe and former Soviet Union, as well as their subsequent transition towards market economies, was arguably one of the most far-reaching economic events of the 20lh century. Pain accom panied the economic transition process; all countries experienced a major fall in output after the start of reforms. The growth performance in transition economies was widely different by countries. The paper is looking for the reasons of the growth differences. Even if the initial conditions did not give the same possibilities to governments, early reforms has opened the way to market processes, which seems to be more efficient than state owned institutions in transition economies. In this context, the lower is the state participation, the highest is growth. Empirical analyses justify that GDP growth is higher in countries where state reallocation is decreasing and where tight fiscal policy has been kept.)

SME performance in transition economies: The financial regulation and firm-level corruption nexus

Using a general equilibrium endogenous growth model we explain underperformance in the small and medium enterprise sector as an effect of corruption and non-competitive banking. Limited competition in the banking sector causes a high loan-deposit spread, worsens the initial effect of corruption, and depresses growth. Fostering bank competition, for instance, by allowing foreign bank entry, would be a simple solution to this problem, but frequently, authorities choose to hamper bank competition. Therefore, we explain the persistence of non-competitive banking as a result of governments’ regulatory choice. If the government has a stake in the banking sector there exists a trade-off between current benefits from bank profits and future growth. Firm-level corruption affects intertemporal optimization and distorts the government’s choice towards more restrictive regulation, i.e., less bank competition, even if the deciding institution itself is not corrupt. These results show that the two prominent problems for small and medium enterprises, corruption and finance, are mutually reinforcing.

The New Institutionalist Approaches to Health Care Reform: Lessons from Reform Experiences in Central Europe

This article discusses the applicability of the new institutionalism to the politics of health care reform in postcommunist Central Europe. The transition to a market economy and democracy after the fall of communism has apparently strengthened the institutional approaches. The differences in performance of transition economies have been critical to the growing understanding of the importance of institutions that foster democracy, provide security of property rights, help enforce contracts, and stimulate entrepreneurship. From a theoretical perspective, however, applying the new institutionalist approaches has been problematic. The transitional health care reform exposes very well some inherent weaknesses of existing analytic frameworks for explaining the nature and mechanisms of institutional change. The postcommunist era in Central Europe has been marked by spectacular and unprecedented radical changes, in which the capitalist system was rebuilt in a short span of time and the institutions of democracy became consolidated. Broad changes to welfare state programs were instituted as well. However, the actual results of the reform processes represent a mix of change and continuity, which is a challenge for the theories of institutional change.

Managerial ownership and the role of privatization in transition economies: The case of China

Within transition economies, a popular tactic for revitalizing large and inefficient stateowned enterprises (SOEs) is to privatize them. Unfortunately, the empirical evidence related to this issue is equivocal. This study, therefore, explores more deeply what the relationship may be between privatization efforts of SOEs and their financial performance in transition economies. Specifically, we seek to better understand whether privatization reforms per se, or other corporate governance mechanisms that complement or substitute for this effort, are most effective. Using a panel sample of Chinese state-owned public firms over an eight year period from 1999 to 2006, we find that managerial ownership has a more significant impact on firm performance than privatization does. This finding suggests that internal incentives to managers may be more effective than external market mechanisms in economies transitioning from centralized planning to market control. Our results are robust using a wide variety of performance measures and different model specifications.

Corporate governance failure and contingent political resources in transition economies: A longitudinal case study

This paper explores the dynamic relationship between politicians and entrepreneurs in the governance of business organizations in transition China. A longitudinal case study of Kelon (1984–2001), a product of politician-entrepreneur alliance in China’s household appliance sector, reveals how certain political resources that once assisted the entrepreneurs in creating competitive advantages in transition economies may turn into political liabilities during the course of institutional transition. Drawing upon the resource-based view (RBV) of the firm, the rent appropriation literature, and the agency theory, this paper sheds light on the contingent impacts of political resources on corporate governance and firm performance in transition economies.

(Un)Happiness in Transition

Despite strong growth performance in transition economies in the last decade, residents of transition countries report abnormally low levels of life satisfaction. Using data from the World Values Survey and other sources, we study various explanations of this phenomenon. First, we document that the disparity in life satisfaction between residents of transition and nontransition countries is much larger among the elderly. Second, we find that deterioration in public goods provision, an increase in macroeconomic volatility, and a mismatch of human capital of residents educated before transition (which disproportionately affects the aged population) explain a great deal of the difference in life satisfaction between transition countries and other countries with similar income and other macroeconomic conditions. The rest of the gap is explained by the difference in the quality of the samples. As in other countries, life satisfaction in transition countries is strongly related to income; but, due to a higher nonresponse of high-income individuals in transition countries, the survey-data estimates of the recent increase in life satisfaction, driven by 10-year sustained economic growth in transition region, are biased downwards. The evidence suggests that if the region keeps growing, life satisfaction in transition countries will catch up with the “normal” level in the near future.

The Evolution of Corporate Governance and Firm Performance in Transition Economies: The Case of Sellier and Bellot in the Czech Republic

Abstract This paper investigates the evolution of corporate governance and firm performance in transition economies. It focuses on barriers that impeded adoption of optimal corporate governance at Czech ammunition manufacturer Sellier and Bellot (S&B) following voucher privatisation in 1993. Exogenously imposed diffuse ownership, combined with legal, capital market, and accounting deficiencies, contributed to poor corporate governance and weak firm performance. This study shows how legal, capital market, and accounting deficiencies hinder corporate governance evolution; it demonstrates monitoring and incentive mechanisms can create value in transition economies; it suggests effective privatisation not only involves rapid ownership transfer but careful accounting and securities regulation and legal protection.

Uncertainty and Growth in Transition Economies

The paper investigates the relationship between fundamental uncertainty, a recurrent theme in post-Keynesian economic literature, and economic performance in transition economies. Uncertainty in the transitional economic environment is enhanced by factors such as institutional transformation, political and social instability, and legacies of the past. To capture the changes in the levels of transition-specific uncertainty, the authors have designed the uncertainty index, based on a weighted selection of Heritage Foundation and Freedom House data. The correlation between the uncertainty index and growth is strong and clearly negative. Panel data analysis based on a growth model, supplemented by variables to simulate transitional cycle, and performed on a sample of transition economies for the period 1995–2002, confirms that high levels of transition-specific uncertainty had a negative impact on economic growth.

(Un)Happiness in Transition

Despite strong growth performance in transition economies in the last decade, residents of transition countries report abnormally low levels of life satisfaction. Using data from the World Values Survey and other sources, we study various explanations of this phenomenon. First, we document that the disparity in life satisfaction between residents of transition and non-transition countries is much larger among the elderly. Second, we find that deterioration in public goods provision, an increase in macroeconomic volatility, and a mismatch of human capital of residents educated before transition which disproportionately affected the aged population explain a great deal of the difference in life satisfaction between transition countries and other countries with similar income and other macroeconomic conditions. The rest of the gap is explained by the difference in the quality of the samples. As in other countries, life satisfaction in transition countries is strongly related to income; but, due to a higher non-response of high-income individuals in transition countries, the survey-data estimates of the recent increase in life satisfaction, driven by 10-year sustained economic growth in transition region, are biased downwards. The evidence suggests that if the region keeps growing at current rates, life satisfaction in transition countries will catch up with the "normal" level in the near future.

Market Share Performance of Foreign and Domestic Brands in China

In this study, the authors examine market share performance of foreign and domestic brands in China. Drawing on the resource-based view and brand management literature, they investigate the impacts of three sets of factors: brands’ competitive advantages, external market environments, and the length of brand existence. The authors also examine the different influences of these factors on foreign versus domestic brands. The empirical testing is based on a survey of senior executives of 408 brands in 52 product categories in China. This study offers new findings on what drives the market share performance in transition economies.

Foreign direct investment and economic performance in transition economies: evidence from China

Based upon a production function with FDI representing updated technology from more developed, market‐based economies, this study tests the hypothesis that FDI contributes to the economic growth of less developed, transition economies via technology updating, using data for 30 Chinese provinces from 1985 to 2000. It is found that provinces with a higher FDI ratio experienced faster technology updating and more rapid economic growth. The study suggests that less developed, transition economies should encourage FDI from more developed, market‐based economies so as to accelerate technology updating and economic growth.

Ownership, Competition and Enterprise Performance

The literature suggests that competitive forces should be an important element in improving enterprise performance in transition economies, especially when combined with private ownership. However, empirical evidence on these issues for Russia has as yet not been convincing. Our findings are consistent with the literature in being unable to identify clear differences in performance between insider- and outsider-owned firms. However, we do find evidence that competitive pressures influence qualitative indicators of managerial activity, including deep restructuring and investment intentions.

Competition and Corporate Governance in Transition

This paper examines the elements of institutional development critical to the enhancement of company performance in transition economies. This includes initial conditions, forms of privatization, institutional frameworks and the competitiveness of markets. Comparing empirical evidence, the paper concludes that there is a clear distinction in effectiveness of policies followed and their impact between Central Europe and CIS countries. This divergence is attributed to fundamentally different political attitudes toward reform, the need of CIS governments to gain political support for reform and as a consequence of the desire of Central European countries to join European Union.

Competition and Enterprise Performance in Transition Economies: Evidence from a Cross-country Survey

This paper uses a survey of 3,300 firms in 25 transition countries to shed light on the factors that influence restructuring by firms and their subsequent performance as measured by growth in sales and in sales per employee over a three-year period. We begin by surveying what a decade of transition has taught us about the factors that determine how firms respond to the new market environment. We go on to analyse the impact on performance of ownership, soft budget constraints, the general business environment and a range of measures of the intensity of competition as perceived by a firm. We find that competition has an important and non-monotonic effect on the growth of sales and of labour productivity: some degree of perceived market power is associated with higher sales growth, but competitive pressure is also important. A similar non-monotonic effect is found upon firms’ decisions to develop and improve their products, but market power has an unambiguously negative impact on purely defensive (cost-reducing) restructuring activity. New firms have grown very fast, but among old firms ownership per se has no significant relationship to performance (though state-owned firms have engaged in significantly less development of new products). Soft budget constraints have a broadly negative and the business environment a broadly positive impact on restructuring and performance.

Enterprises in the Post-Privatization Period

Most empirical studies in recent times have examined the effects of privatization and new ownership structures on enterprise performance in transition economies. Although the initial expectation was very optimistic, the empirical evidence does not confirm the hypothesis that enterprises in transition countries perform better after privatization (Earle and Estrin 1996; Konings 1998; Jones and Mygind 1998). Konings (1998) emphasizes that the unexpectedly worse performance of the privatized firms could be the result of the new ownership structure formed after the mass distribution of vouchers. Insiders, workers and managers' were then able to block the process of restructuring, which, in its first phase, is characterized mainly by the downsizing of loss-making activities and associated redundancies. Many authors present managers as being skillful in protecting themselves against pressures for change while resisting innovative changes and the restructuring of their firm's activities. How-

Investment, Restructuring and Performance in Transition Economies

This article seeks to test whether there is evidence that investment affects economic performance as measured by changes in GDP during transition: we find that differences in performance are associated mostly not with investment patterns but with varying marginal capital productivity. There is some evidence that higher investment generally contributes to greater restructuring. However, the link between industrial restructuring at the macro level and economic performance (GDP change) is not straightforward: shifts in industrial structure (industry/agriculture/services) and changes in the share of defence expenditure in GDP do not appear to affect performance, but there is a strong link between increases in export/GDP ratios and better capital productivity and performance.