In this paper, we present and test a theory of how political connectedness (often linked to political corruption) affects corporate governance and productive efficiency of firms. Our model predicts that underdeveloped democratic institutions that do not punish political corruption result in political connectedness of firms that in turn has a negative effect on performance. We test this prediction on an almost complete population of Slovenian joint-stock companies with 100 or more employees. Using the data on supervisory board structure, together with balance sheet and income statement data for 2000-2010, we show that a higher share of politically connected supervisory board members leads to lower productivity.

This paper tests three empirical hypotheses that relate the decision for outward FDI to total factor productivity. For this purpose, we use a rich data set of Slovenian manufacturing firms The evidence also supports the hypothesis that required productivity increases with number of markets that firm serves. Finally, this paper finds that past exporting experience to individual countries increases the likelihood of investment to respective markets. JEL Classifications: D24, F14Key Words: Foreign Direct Investment, Exports, Firm Heterogeneity, Multinational Firm, Productivity 1 We would like to thank for the comments and helpful criticism from anonymous referees.

We develop a theoretical framework for defensive and strategic restructuring, and provide estimates of restructuring in privatized firms in an advanced transition economy: Slovenia. Our rich data point to both types of restructuring, as well credit rationing and bargaining with respect to investment. Privatized firms display profit-maximizing behavior, and a firm's export orientation and institutional features, such as insider vs outsider privatization, employee ownership, and employee control, do not affect the firm's employment and investment behavior. The results suggest that a major exposure to world competition induces similar economic behavior in firms with different structural and institutional characteristics. Journal of International Business Studies (2008) 39, 725–746. doi:10.1057/palgrave.jibs.8400379

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