Enterprise Restructuring Research Articles

China's Continuing Urban Transition

Urban growth in China has proceeded in step with the growth and transition of the socialist economy. Year 2000 Census data indicate an urban population of 456 million; this is 36% of the total population and is increasing much more rapidly than the overall population. Several factors drive this rapid urbanization and growth of cities and towns: continuing, although diminishing, population growth; migration of rural people, as regulations on rural and urban household registration change; rapid structural shift in employment activities and the decline of farm employment; foreign trade and foreign investment, especially in coastal areas; restructuring of state-owned enterprises and growth of private enterprises and activities; and allocation of domestic funds in fixed assets for urban infrastructure, also concentrated in coastal areas. Key issues for continuing urbanization focus on the capacity of the emerging private sector in parallel with the state and collective sectors to generate new jobs, and the willingness of the central state to reconcile the subsidies and privileges of state-sector urban employees with other recent migrants in cities and towns who do not enjoy the state-sector subsidies.

The Role of Foreign Direct Investment in the Privatisation and Restructuring of the Czech Motor Industry

Foreign direct investment (FDI) has been considered one of the crucial factors of a successful economic transformation in Central and Eastern Europe. This article investigates the role of FDI in the privatisation and restructuring of the Czech motor industry in the 1990s. In particular, it examines how governmental policies towards FDI affected FDI inflows, the immediate effects of FDI at the enterprise level, and the contested nature of this change. Advantages of foreign ownership for Czech enterprises, such as access to investment capital, access to sale and distribution networks of parent companies and technology transfer are discussed, as well as examples of failures of FDI to result in a successful enterprise restructuring. The information presented is based upon in-depth interviews with top managers of twenty component suppliers, governmental officials and vehicle makers in the Czech Republic as well as on the secondary data.

Book Reviews

Books reviewed:Gérard Roland, Transition and Economics. Politics, Markets, and FirmsAsli Demirgüç‐Kunt and Ross Levine (eds.), Financial Structure and Economic Growth: A Cross‐Country Comparison of Banks, Markets and DevelopmentDalia Marin and Monika Schnitzer, Contracts in Trade and Transition: The Resurgence of BarterEnese Lieb‐Dóczy, Transition to Survival: Enterprise restructuring in twenty East German and Hungarian companies, 1990–1997Saul Estrin, Xavier Richet and Josef C. Brada (eds.), Foreign Direct Investment in Central Eastern Europe: Case Studies of Firms in TransitionSheila M. Puffer, Daniel J. McCarthy and Alexander I. Naumov, The Russian Capitalist Experiment: From State‐owned Organizations to Entrepreneurships

Virtual Reality: Barter and Restructuring in Russian Industry

A general consensus in the transition economies literature links the existence of enterprise restructuring with the pace of the transition process and the potential for economic growth. The existing literature is less clear, however, about whether the lack of economic growth is caused by the lack of enterprise restructuring. Complicating the debate in Russia is the confusion regarding the role of barter transactions in enterprise restructuring. Much of the confusion is generated by proponents of a ?virtual economy? interpretation of how the Russian economy and Russian enterprise managers operate. This paper dispels much of the confusion about the existence of enterprise restructuring and the corresponding role of barter by demonstrating why the virtual economy model fails to accurately depict economic actions or outcomes in Russia. We develop the argument that barter is closely related to an absence of liquidity in the Russian economy, using both macro-level and micro-level data to document the consequences of ?structural illiquidity.? Our results are unambiguous: both the incidence and volume of barter transactions are inversely related to liquidity. We conclude that analyses using barter transactions as evidence of the lack of enterprise restructuring in Russia stem from: (1) the lack of clear consensus about what constitutes enterprise restructuring in transition economies and how it varies with the stage of the transition process; (2) errant assumptions about managers? objective functions; (3) the relative mix of formal and informal restructuring mechanisms; (4) the lack of attention to industry variation and, within industry, to managerial characteristics; and (5) the Texan complex (if it ain?t big, it ain?t ...) which causes analysts to ignore changes in enterprise operations unless they occur on a grandiose scale.

State-owned enterprises, soft budget constraints and the owner—regulator syndrome

We look at the soft budget constraint literature in the context of the state-led restructuring of state-owned enterprises (SOE) in which institutions are both regulators charged with constraining SOE restructuring outcomes and part owners of the SOEs concerned. Such institutional agents constitute a set of what we term “owner—regulators (OR)”. These economic agents may have political problems as regulators — as suggested by the Chicago School approach to economic regulation. They can also have ownership problems — here defined by literature on the theory of the firm and on vertical structure. In this light the incentives associated with the imposition of hard budget constraints may be by themselves insufficient to radically change owner—regulator behaviour. If the implementation of such constraints does not take into account the factors highlighted by this paper, hard budget constraints are likely to be either counterproductive or irrelevant.

The Enterprise Isolation Program in Romania

We provide comprehensive analysis of the isolation program for financially distressed firms in Romania. The results indicate that the isolation program did not deliver any tangible improvements in operational performance, nor did it enhance the process of privatization or liquidation of large loss-making enterprises. Firms included in the program faced softer budget constraints than their comparators outside the program, and few management changes in poorly performing firms took place. These findings question the feasibility of creating successful programs for enterprise restructuring under government auspices.

The Regional Dimensions of Barriers to Business Transactions in Russia

This analysis, based on more than 70 company case studies across 13 Russian regions during the spring, summer and fall of 2000 and the summer of 2001, examines four key issues that Russian firms face in carrying out business transactions in Russia's regional markets: (i) the state of inter-enterprise competition; (ii) the regulatory regime governing the delivery of infrastructure services (with a focus on the telecom and Internet sector); (iii) the sources and use of corporate finance; and (iv) the efficacy of the court system in fostering the settlement of commercial disputes. The study formulates policy recommendations for each of the areas analyzed. In so doing it sheds light on salient inter-regional differences in existing policy frameworks and in the structure and nature of the country's enterprise sector, as well as on how regional governments and firms both respond to and shape these differences. The study also highlights the evolution of inter-regional policy and economic changes over time, assessing the extent to which, two years after the 1998 crisis, enterprise restructuring at the local level has been affected by the devaluation of the ruble.

The challenges of global capitalism: unemployment and state workers' reactions and responses in post-reform China

As China enters the twenty-first year of reform, the success of its economic policies has been widely recognized. But what is also true is that economic reforms initiated in the past decades, particularly the restructuring of state-owned enterprises, have inevitably marginalized state workers - the 'masters of socialist China'. Workers in private and non-state sectors might have benefited from the economic reforms but state workers of most state-owned enterprises feel bitterly left behind. The aim of this article is to examine the perception of state workers of the causes of organizational difficulties, their worries in face of redundancy and their coping strategies. Observations made in this study are based on field interviews and questionnaire survey of 649 state workers in Beijing, Shenyang and Zhejiang from 1996 to 1999.

IMF Staff Country Report 02/066 Guinea-Bissau: Request for a Three Year Arrangement Under the Poverty Reduction and Growth

This paper examines Guinea-Bissau's Request for a Three-Year Arrangement Under the Poverty Reduction and Growth Facility (PRGF). Progress was made on the structural front, but the public enterprise restructuring and privatization program continues to experience delays. The new program focuses on maintaining macroeconomic stability and accelerating growth as prerequisites for poverty reduction. Given the authorities’ commitment to the poverty reduction strategy and their consistent record in meeting their obligations to the IMF, the IMF staff supports the authorities’ request for a new three-year arrangement under the PRGF.

Determinants of Commercial Bank Performance in Transition: An Application of Data Envelopment Analysis

Banking sectors in transition economies have experienced major transformations throughout the 1990s. While some countries have been successful in eliminating underlying distortions and restructuring their financial sectors, in some cases financial sectors remain underdeveloped and the rates of financial intermediation continue to be quite low. The authors estimate indicators of commercial bank efficiency by applying a version of Data Envelopment Analysis (DEA) to bank-level data from a wide range of transition countries. They further extend the analysis by explaining the differences in efficiency between financial institutions and countries by a variety of macroeconomic, prudential, and institutional variables. In addition to stressing the importance of some bank-specific variables, the censored Tobit analysis suggests that: 1) Foreign ownership with controlling power and enterprise restructuring enhance commercial bank efficiency. 2) The effects of prudential tightening on the efficiency of banks vary across different prudential norms. 3) Consolidation is likely to improve efficiency of banking operations. Overall, the results confirm the usefulness of DEA for transition-related applications and may shed light on the optimal architecture of a banking system.

Determinants of Commercial Bank Performance in Transition: An Application of Data Envelopment Analysis

Banking sectors in transition economies have experienced major transformations throughout the 1990s. While some countries have been successful in eliminating underlying distortions and restructuring their financial sectors, in some cases financial sectors remain underdeveloped and the rates of financial intermediation continue to be low. We estimate indicators of commercial bank efficiency by applying a version of Data Envelopment Analysis (DEA) to bank-level data from a wide range of transition countries. In addition to stressing the importance of some bank-specific variables, the censored Tobit analysis suggests that (1) foreign ownership with controlling power and enterprise restructuring enhances commercial bank efficiency; (2) the effects of prudential tightening on the efficiency of banks vary across different prudential norms; and (3) consolidation is likely to improve the efficiency of banking operations. Overall, the results confirm the usefulness of DEA for transition-related applications and shed some light on the question of the optimal architecture of a banking system.

Hardened Budgets and Enterprise Restructuring: Theory and an Application to Romania

We identify the presence of soft budgets and analyze their impact on enterprise restructuring in Romania over the initial transition period. A simple analytical framework is developed to show that hardened budget constraints foster rationalization of costs but not new investment. The latter requires availability of external financing. The model emphasizes the importance of the credibility of hardened budgets and the empirical findings are consistent with its predictions. Using a sample of over 4000 Romanian enterprises from 1992 to 1995, we show that hardened budget constraints induce labor shedding. However, there is no evidence of new investments. J. Comp. Econ., December 2001, 29(4), pp. 749–763. University of Sienna, Central European University, and CEPR; and World Bank and CEPR. © 2001 Elsevier ScienceJournal of Economic Literature Classification Numbers: G32, G34.

The Restructuring of State-Owned Enterprises: South African Initiatives

(2001). The Restructuring of State-Owned Enterprises: South African Initiatives. Asian Journal of Public Administration: Vol. 23, No. 2, pp. 205-216.

Can State-owned Banks Promote Enterprise Restructuring? Evidence from One Polish Bank's Experience

In this paper, we take a detailed look at one Polish bank's experiences with financial sector reforms focusing on a bank-led enterprise-restructuring plan that linked directly bank privatization and recapitalization to bad-debt workouts. Based on personal interviews and original statistical data, we evaluate the performance of Bank Depozytowo-Kredytowy (BDK) in promoting financial and operational restructuring of its clients. We found that BDK continued to provide soft lending to keep four old military‐industrial companies afloat and actually increased its exposure to these companies during the program. The five success stories among BDK's clients were companies that had external agents other than the bank promoting and monitoring their operational restructuring. From our case study of BDK, we conclude that, while banks may play a role in financial restructuring of their clients, their ability to affect operational restructuring is quite limited. Moreover, stateowned banks are particularly vulnerable to incentive problems when dealing with large state-owned enterprises that may be too big or too political to fail.

Determinants of barter in Russia: an empirical analysis

This paper analyzes the causes and consequences of non-monetary transactions in Russia, drawing on a large enterprise survey. We show that barter and offsets are linked to liquidity problems at the level of the firm and to arrears in particular. We find evidence that the state has channeled implicit subsidies to enterprises in the form of tax and utility offsets. The findings help explain the rise of non-monetary transactions during much of the 1990s. We show that non-monetary transactions inhibit enterprise restructuring. Our findings suggest that a policy solution to the non-cash problem would require the state and public utilities to phase out arrears and offsets.

Opening the black box: an analysis of the Russian economy

The article develops a simple framework for a discussion of the structure of property rights in the Russian economy. The framework suggests how barter and enterprise restructuring can be evaluated simultaneously with political motivation. Using the notion of politicians with inefficient control over the private sector, it also assesses the recent virtual economy hypothesis. It emphasizes the importance of incentives that were carried over from the Soviet era, which, it is suggested, must be duly considered while analyzing parametric changes in the Russian economy. This point is supported with the help of two examples at the end of the paper.

Transition and Enterprise Restructuring: The Development of Individual Farming in Romania

Economic reforms have induced enterprise restructuring in transition countries. In agriculture, the most dramatic form of restructuring is the break-up of state and collective farms into individual farms. The development of individual farming varies strongly between countries, regions and households. This paper uses household-level data from a 1996 survey in Romania to analyze which household and regional characteristics determine the shift to individual farming. Individual farming is influenced by several household characteristics, such as the human capital (education, age, farming experience), physical capital endowments (ownership of land, buildings, machinery, livestock) and access to other finance sources (off-farm wages, pensions). Furthermore, environmental factors, such as infrastructure, local access to inputs, and the pre-reform importance of individual farming in the region, all affect the development of individual farming.

Post-privatisation Enterprise Restructuring

Post-privatisation restructuring of former state-owned enterprises (FSOEs) encompasses both shorter-run 'defensive' actions and longer-run 'strategic' measures. Restructuring involves changes in corporate governance, organisational structure, management, labour, capital, technology, output and sales. Various performance indicators may measure the results of restructuring, but care is required in the selection and interpretation of indicators. In the restructuring of FSOEs foreign strategic investors have many advantages over domestic investors. The study includes examples from experience in the Czech Republic, Hungary and Poland.

Post-privatisation Enterprise Restructuring

Post-privatisation restructuring of former state-owned enterprises (FSOEs) encompasses both shorter-run 'defensive' actions and longer-run 'strategic' measures. Restructuring involves changes in corporate governance, organisational structure, management, labour, capital, technology, output and sales. Various performance indicators may measure the results of restructuring, but care is required in the selection and interpretation of indicators. In the restructuring of FSOEs foreign strategic investors have many advantages over domestic investors. The study includes examples from experience in the Czech Republic, Hungary and Poland.

Restructuring with What Success? A Case Study of Russian Firms

This case study of enterprise restructuring utilizes data collected from thirty-two former state-owned firms in Taganrog, Russia, in the summer and fall of 1999. These data are used to construct three composite measures of enterprise restructuring. When defined broadly to include several dimensions of the restructuring process, the “restructuring threshold” is achieved by half of the privatized firms participating in the project. The firms achieving this threshold are distributed across all industries included in the sample. Regardless of the composite measure used, more than one-third of the former state-owned firms participating in this project attained the “active” restructuring designation. The results indicate that (1) production assortment changes appear to be ongoing among those firms engaged in restructuring activities, (2) employment changes appear to involve a mixed strategy with regard to timely wage payments, workforce size, and the benefits package; and (3) outsider ownership is more prevalent among the group of firms designated as restructuring than among those firms that failed to achieve the “restructuring threshold.” To put into perspective the economic and business environment in which these former state-owned firms operate, a comparison is made to a group of de novo firms that were surveyed under the auspices of the same project.