Why Ownership Matters? Entrepreneurship and the Restructuring of Enterprises in Central Europe

Frydman, Roman; Hessel, Marek P.; Rapaczyński, Andrzej

doi:10.2139/ssrn.194574

Cited by 48 publications

(39 citation statements)

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“…8 Labor productivity is the prevalently used performance measure for transition countries (Earle and Estrin, 1998, Pohl et al, 1997, Frydman et al, 2002, and Linz and Krueger, 1998 we also replicated our analysis with the full data set and our findings remained unchanged. We also exclude observations with zero costs of goods sold.…”

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confidence: 56%

“…Therefore, we exclude all firm-year 7 It is also not very probable that these high replacement rates were a consequence of low turnover in the preprivatization period. In fact, Claessens and Djankov (1999) report that at least 50 percent of voucher-privatized firms in their sample replaced their managing director already in the pre-privatization period.8 Labor productivity is the prevalently used performance measure for transition countries (Earle and Estrin, 1998, Pohl et al, 1997, Frydman et al, 2002, and Linz and Krueger, 1998 we also replicated our analysis with the full data set and our findings remained unchanged. We also exclude observations with zero costs of goods sold.…”

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Can you teach old dogs new tricks? On complementarity of human capital and incentives

Fidrmuc

2006

Journal of International Money and Finance

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Abstract:Contract theory suggests that firm performance can be improved by appointing new managers and/or by introducing better incentives. Furthermore, these two changes should be complementary -their effects reinforce each other. Using data on privatized firms in the Czech Republic, this paper presents results that suggest complementarity between the appointment of new managers and introduction of incentives in a transition economy. The results also show that ignoring the complementarity may lead to the wrong conclusion that the effect of incentives is weak. Managerial incentives seem to work only after the new post-privatization managers are appointed. JEL Classification Numbers: G34, L29, M51, P31Keywords: Contract Theory, Incentives, Managerial Change, Privatization, Restructuring.* Corresponding author. E-mail: Jana. Fidrmuc@wbs.ac.uk, Phone: +44-2476-522-210, Fax: +44-2476 1 IntroductionThis paper analyzes managerial replacement as a tool that new private owners can use to improve firm performance after privatization. In general, firm performance depends on both managerial ability and efforts (Laffont and Tirole, 1986). To induce the manager to increase effort, the owner (the principal) can introduce incentives such as performance-dependent pay/bonuses, promotion/reappointment if performance is good and demotion/dismissal if it is bad. Thus, theory predicts that firm performance can be improved in two ways: by appointment of more capable managers or by introduction of stronger incentives. However, McAfee and McMillan (1987) [McMillan, 1997, pp. 210 and 215].Managerial incompetence and lack of motivation constitute two important sources of inefficiency of state firms in a planned economy. Thus, firm restructuring should focus both on the introduction of stronger incentives and on appointment of competent managers (McMillan, 3 1997, andRoland, 2000). But which one of the two should receive priority? So far, empirical evidence on restructuring in transition is predominantly in favor of the view that the new human capital is more important than incentives. 1 Often, introduction of new managers is associated with better firm performance whereas the evidence for incentives is weak. However, failure to account for the complementarity between human capital and incentives may lead to misleading conclusion that better incentives do not work and that the appointment of new managers is more important.Our paper sheds some new light on the relative roles of human capital and incentives and interactions between them in firm restructuring. Compared to the previous literature 2 , we employ the approach often used in the finance literature that examines the sensitivity of managerial change to past firm performance (see, for example, Denis and Denis, 1995). 3 This methodology addresses the impact of negative incentives embodied in high sensitivity of managerial change to poor past performance. We find that the negative managerial incentives start working only after the incumbent pre-privatization manager has been re...

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Can you teach old dogs new tricks? On complementarity of human capital and incentives

Fidrmuc

2006

Journal of International Money and Finance

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“…Redundancy of non-production-workers is a major cause of loss of state-owned enterprises, but state-owned enterprises did not lay off employees [18]. Frydman, Hessel and Rapaczynski pointed out, it is political pressure that prevent state-owned enterprises laying off employees [19]. Unlike to state-owned economy, non-state-owned economy of our country, especially the private economy, is developing in the market conditions, basically in accordance with the rules of market economy to use factors of production [20].…”

Section: Labor Cost Stickiness and Statementioning

confidence: 99%

A Study on the Labor Cost of Chinese Listed Companies—Based on the Perspective of Labor Contract Law

Zhang¹

2016

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Given the background of enterprises facing with rising labor costs and shortage of human resources, we use a large sample of firms in China during 2004-2011 to test the sticky characteristic of labor cost. We also test the effect of labor protection on cost stickiness based on the implementation of Labor Contract Law. We find that the labor cost of listing firms in China is sticky, and the stickiness of state-owned enterprises is higher than that of non-state-owned enterprises. Furthermore, implementation of Labor Contract Law increased labor cost stickiness, both state-owned enterprises and non-state-owned enterprises.

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“…Moreover, the change in ownership fosters a greater entrepreneurial orientation in the recognition and exploitation of business opportunities (Frydman et al, 1998;Zahra et al, 2000). Consequently, the issues of the valorization and exploitation of the technological capital become major concerns after privatization, and several organizational solutions targeted to improve their effectiveness are typically undertaken as suggested by the observed increase in patent productivity .…”

Section: The Impact Of Privatization On Firms' Innovative Performancementioning

confidence: 99%

Privatization and R&D Performance: An Empirical Analysis Based on Tobin's q

Munari

Oriani

2002

SSRN Journal

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SummaryIn this paper, we analyze the impact of privatization on the firms' R&D performance. We expect that, in the early period after privatization, path dependencies still negatively affect the efficiency of R&D operations. We test our hypothesis using a Tobin's q measure and estimating a hedonic model, already adopted by several scholars to assess the impact of innovation related assets on the firm's market value (Griliches, 1981). We estimate the regression model on an original panel data of 40 firms, including 20 firms privatized through public share offering in different countries of Western Europe over the period 1982-1997 that were matched at the country and industry level with 20 publicly held firms. Our results show that stock markets evaluate R&D investments of newly privatized companies less than R&D investments of industry-matched companies.

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Why Ownership Matters? Entrepreneurship and the Restructuring of Enterprises in Central Europe

Cited by 48 publications

References 24 publications

Can you teach old dogs new tricks? On complementarity of human capital and incentives

Can you teach old dogs new tricks? On complementarity of human capital and incentives

A Study on the Labor Cost of Chinese Listed Companies—Based on the Perspective of Labor Contract Law

Privatization and R&D Performance: An Empirical Analysis Based on Tobin's q

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