When Does Privatization Work? The Impact of Private Ownership on Corporate Performance in the Transition Economies

TLDR

The study compares performance of privatized and state firms in Central European transition economies, arguing that privatization effects differ by owner type. The authors control for selection bias in their comparative analysis. Privatization to outsider owners significantly raises revenue performance but does not reduce costs, and overlooking this effect overstates potential employment losses from restructuring.

Abstract

This paper compares the performance of privatized and state firms in the transition economies of Central Europe, while controlling for various forms of selection bias. It argues that privatization has different effects depending on the types of owners to whom it gives control. In particular, privatization to outsider, but not insider, owners has significant performance effects. Where privatization is effective, the effect on revenue performance is very pronounced, but there is no comparable effect on cost reduction. Overlooking the strong revenue effect of privatization to outsider owners leads to a substantial overstatement of potential employment losses from postprivatization restructuring.