Choice of Ownership Structure and Firm Performance: Evidence from Estonia

Abstract

This article uses panel data for a representative sample of Estonian enterprises to analyse diverse issues related to the determinants of ownership structures and ownership changes after privatisation. A key focus is to determine whether ownership changes are related to economic efficiency. While employee-owned firms are found to be much more prone than other firms to switch ownership categories, often 'employee-owned' firms remain 'insider-owned' as ownership passes from current employees to managers and former employees. Logit analysis of the determinants of ownership structures and ownership changes provides mixed support for several hypotheses. As predicted: (i) wealth and resource constraints play a crucial role in the determination of ownership, with foreigners buying firms with the highest equity levels and insiders buying firms with the lowest equity valuations; (ii) risk aversion explains subsequent ownership changes, especially away from employee ownership; (iii) allocation of ownership depends on the pre-privatisation origin and location of the firm, and these factors also influence subsequent ownership changes. Our findings provide mixed support for the hypothesis that ownership changes are related to economic efficiency.

Determinants and performance effects of the allocation of ownership rights in consulting firms

“…In line with the approaches by Jones et al (2003), Blair, Kruse, & Blasi (2000), and Thomsen & Pedersen (1998), we used the volatility of turnover, defined as the variation coefficient of turnover in the years 1999-2003, as a measure for the business risk of a consulting firm (Hypothesis 2.2).…”

“…A second group of researchers investigates the identity of the owners, that is, the conditions under which the ownership rights to an asset are allocated to a particular class of patrons such as suppliers, buyers, financial investors, employees (or a subset of them), or others (Delios & Beamish, 1999;Hansmann, 1996;Pittatore & Turati, 2000). However, relatively little systematic empirical evidence has been produced in this stream of research, exceptions including Jones and Mygind (1999), Jones, Kalmi, and Mygind (2003), and Mygind, Demina, Gregoric, and Kapelyushnikov (2004). A third group of authors bridges the gap between the first two research streams to some extent by including in their analyses measures of the relative share of ownership rights held by different classes of patrons (Hermalin & Weisbach, 1988;Himmelberg, Hubbard, & Palia, 1999;Holderness, Kroszner, & Sheehan, 1999;McConnell & Servaes, 1990).…”

Privatization in Poland What was the government trying to achieve?1

“…With this assumption, we use the observed characteristics of the firms that were privatized at various dates to compare alternative assumptions regarding the functional form of the government's unobserved objective function. Our analysis of the selection of firms for privatization differs therefore from the existing ones (for example, Jones et al ., 2003) in that we take the seller's perspective, not the buyer's: we look for the government's selection criteria for privatization, as opposed to what induced investors to acquire the firms offered for sale. We study the privatization process of large firms operating in oligopolistic markets.…”

Trends in employee ownership in Eastern Europe

“…Large size and high capital intensity implied extra pressure for change of ownership. In Estonia there was in fact observed a faster change in capital intensive enterprises (Jones, Kalmi & Mygind, 2005). A deeper study of changes in ownership in a large representative sample of Baltic firms show a fast change in ownership structure -often following the sequence: employee ownership -management ownership -concentrated external ownership (Jones & Mygind, 2006).…”