Operating Performance of Newly Privatized Firms in Central European Transition Economies
45 Pages Posted: 29 Sep 2006
Date Written: September 2006
This study examines the operating performance of privatized firms in three Central European Transition Economies (CEE) between 1990 and 1998. Overall, we find no evidence of a significant improvement in operating performance for the first six years after privatization. Contrary to the increasing empirical evidence for developed and developing countries, privatized firms in our sample experience no improvement in profitability, capital investments, efficiency, and output, a significant drop in employment, as well as a significant increase in leverage. Among the sample countries, Hungary performed better in terms of profitability, while Czech firms increased leverage and experienced lower reduction in (adjusted) output compared to their Hungarian and Polish counterparts. The most important determinants of the performance changes following privatization were country effects, timing of the privatization sales, industry classification, and the state ownership after privatization. Our findings are consistent with the empirical evidence that transition process proved to be more difficult than expected and that, although necessary, privatizations do not necessarily produce equal efficiency gains in transition economies (Megginson 2005; Havrylyshyn and McGettigan 1999). The results remain robust after controlling for the sample selection bias related to the governments' preferred choice of timing of firm sales included in privatization programs.
Keywords: Privatization, Operating Performance, Transition Economies, Self-selection
JEL Classification: G32, P34, P52
Suggested Citation: Suggested Citation