Time to Rethink Privatization in Transition Economies?

Insider privatization with a tail: the screening contract and performance of privatized firms in rural China

“…For example, the study's findings are consistent with the mixed results that frequently appear in studies of the effects of insider privatization (Earle, 1998;Havrylyshyn and McGettigan, 1999;Nellis, 1999). Although there are other explanations for why insider privatization may not succeed in all cases, the results of our empirical work suggest that perhaps if other studies grouped privatized firms that were sold to their managers on the basis of the size of the buyout price and/or tail, they might have found that some privatized firms consistently outperform those of others.…”

“…As an important part of China's economic revival, rural industrial enterprises, which began as locally government-owned units, still were producing nearly half of China's industrial output in the mid-1990s (Walder, 1995). In the late 1990s, however, local governments privatized more than half of their firms, up to two million of them (Nyberg and Rozelle, 1999). During the wave of privatization, officials sold almost all firms to insiders.…”

Are OECD-prescribed “good corporate governance practices” really good in an emerging economy?

“…In state-controlled companies, the state likely pursues socio-political objectives, such as employment and high wages, even at the expense of firm performance (Boardman & Vining, 1989;Shleifer & Vishny, 1994). To achieve its socio-political goals, the state might appoint politicians to the management team who are not skilled at commercial activities and have weak incentives to improve corporate performance (Boycko, Shleifer, & Vishny, 1996;Hart & Moore, 1990;Nellis, 2007;Shleifer, 1998;Su et al, 2007). We thus expect that in these emerging economies with weak institutions, ownership concentration in a firm will have an inverted U-shaped relationship to corporate performance, regardless of the status (state or private) of the controlling shareholder in a firm.…”

Bank privatization in developing countries: A summary of lessons and findings

“…The most important exceptions are firms sold to incumbent managers and employees in the former Soviet Union, especially Russia, in the early 1990s. This might not be surprising; when these firms were sold to managers and workers, this prevented needed restructuring and limited capital infusions (Barberis et al, 1996;Claessens and Djankov, 1999;Dyck, 2001;Earle et al, 1995;Frydman et al, 1999;Havrylyshyn and McGettigan, 2000;Kane, 1999;Nellis, 2000). When majority shareholdings were sold to outsiders in the former Soviet Union, performance also improved there (Black et al, 2000;Bornstein, 1994;Earle, 1998;Earle and Estrin, 2003).…”