A Comparative Analysis of Managerial Adaptation to Privatization

ABSTRACT

Economic analysis on emerging economies of Central and Eastern Europe (CEE) has shown a flourishing private sector coexisting with shrinking state enterprises fueling speculation that growth would come from the new private sector. In this view, it is important to (1) assess the private sector which continues to grow and is vital to the process of emerging new market economies; and (2) account for the current place of entrepreneurship and assign its role in the process of systemic transformation which takes place in the economies of the CEE. Based on interviews and models on en-trepreneurship, the paper analyzes how the entrepreneurs' behavior is influenced by government regulation, credit terms, taxation, long-term and short-term financing options, level of infrastructure, and preferences to small business, and how entrepreneurs' consequent behavior can in turn influence the working system itself. The goal is to show that the emerging small business sector of the post-Communist Hungarian economy fulfills important material and ideological functions. The paper concludes that the Hungarian entrepreneurship is an independent vehicle for economic growth and bringing about the emergence of capitalist forms of economic production in the post-Communist Hungarian economy.     

Bilateral versus Multilateral Trade and Investment Liberalisation

To assess the welfare effects of bilateral versus multilateral trade and/or investment liberalisation in general equilibrium, we set up a three‐country and three‐factor knowledge‐capital model of trade and multinational activity. Numerical simulation results indicate that multilateral liberalisation tends to dominate bilateral liberalisation in welfare terms. A transition economy tends to prefer bilateral over multilateral liberalisation to avoid plant relocation. For similar reasons, a developed country may prefer bilateral over multilateral liberalisation, if the other economies exhibit big relative factor endowment differences.     

Impact of ownership and location factors on service multinationals' internalisation

Foreign direct investment in the service sector has been gaining importance in the past decade as more countries transform themselves into post-industrialised economies. The transition from a centrally planned economy to market-based economy has generated a surge of foreign direct investment from industrialised countries to Central and Eastern European Countries. This paper examines the impact of ownership and location factors on the extent of internalisation for service multinationals seeking to enter into the Czech Republic, Hungary, and Poland, as these countries launch their economies towards increased privatisation, deregulation, and liberalisation. Using foreign direct investment data of 76 firms during 1990–2000, we find significant support for our main hypotheses.     

The Dynamic Links Between Exports,Foreign Direct Investment,and Economic Growth: Evidence from European Transition Economies

ABSTRACT

By applying time series and panel data cointegration analysis, this study investigates the causal relations between exports, inward FDI and GDP for fifteen European transition economies over the period 1995–2014. This study goes beyond previous empirical works by using two auxiliary variables in the aforementioned nexus: domestic investment and government spending. Empirical findings suggest that though the effect of openness is beneficial to all economies of the region, the presence of export-led growth and FDI-led growth hypotheses are validated mainly for the group of economies that entered the European Union in 2004. Conversely, for the remaining economies, the results confirm the prevalence of a culture for saving over spending, which eventually provokes the beneficial expansion of their local investment and export capacity.     

A Survey of Capital Budgeting Techniques in the Public and Private Sectors of a Less Developed Country (LDC)

ABSTRACT

This study surveys the capital budgeting practice in private and commercially-oriented public sector enterprises in the Sudan, an African Less Developed Country (LDC). The study attempts to fill a gap in the existing literature by documenting the capital budgeting practice in an LDC where the economic environment is different than the developed and developing counterparts and where public sector still plays a major role in the economy.

The study found a sizable number of commercially-oriented public corporations that do not use capital budgeting techniques in their capital investment decisions while the majority of private sector companies use these methods. Among the corporations that use capital budgeting methods, both in the public and private sector, the payback method (PB) is the most widely used method, followed by the Internal Rate of Return (IRR) and Net Present Value (NPV) in the private sector and the public sector respectively.

The study also revealed additional factors such as cost, size, quality, experience and hard currency requirements that affect the capital budgeting process in both sectors. However, there are differences in the level of importance of these factors between the two sectors.     

Do women-owned businesses have equal access to angel capital?

Women-owned businesses are the fastest growing sector of new venture ownership in the United States. Although women's access to, and use of, debt and venture capital financing have been explored, comparatively little is known about women's access to capital from private equity investors. In this paper, we examine the equality of women's access to angel capital. The research suggests that women seek angel financing at rates substantially lower than that of men, but have an equal probability of receiving investment. We also document that women are more likely to seek, and to a lesser extent receive, financing from women angels.     

Financial Liberalisation and Growth in China’s Economic Reform

This paper summarises China’s financial liberalisation experience and examines the contributions of financial resources on economic growth during the post‐reform period. Financial liberalisation has resulted in the reallocation of the four sources of total investment in fixed assets: state budget appropriation, national bank loans, self‐raised funds, and foreign investment. We find that the growth of GDP and industrial production are positively related to the growth of self‐raised funds and foreign investment. We conclude that the use of foreign investment and funds raised by the enterprises themselves are more efficient than the government’s appropriation and provision of bank loans.     

浙江民间资本投资模式与制度构建研究

浙江民间资本丰富,但却存在民间资本投资难和中小企业融资难并存的"两难"困境。究其原因,主要是中小企业融资渠道单一,民间资本投资渠道狭隘,民间资本投资游离于实业之外,民间资本投资体系风险不断加大等。浙江省迫切需要从规范民间资本投资的基本运作模式入手,将民间资本有效转化成产业资本,积极促进小额贷款公司发展,提升民间借贷登记服务中心运行效率。同时还要加强民间资本投资监管的制度构建,从而促使民间资本投资阳光化、规范化、合法化。     

How does governmental versus private venture capital backing affect a firm's efficiency? Evidence from Belgium

We investigate the implications of venture capital (VC) investor type (government or private) on the operating efficiency of a sample of 515 Belgian portfolio firms up to 3 years after the investment. We find that the government VC-backed firms display significant reductions in productivity. No significant differences in efficiency are found in firms backed by private VC compared with their non-VC-backed peers. Finally, significant reductions in efficiency exist in targets of government VC compared to their non-VC-backed peers.     

Mergers and acquisitions in Latin America 1990–2014: Factorial distribution and contractionary impacts

The evolution of mergers and acquisitions (M&A) in Latin America from 1990 to 2014 is analyzed herein. A one‐sector production model without government and external sectors that links prices/costs, income distribution, demand and output is proposed, and the effects of changes in M&A on profit margins, income distribution and gross domestic product (GDP) are evaluated. The model is applied to most regional economies to determine the impact of these transactions on the profit share and level of economic activity. Our analysis does not reject the hypotheses that M&A have distributive effects favorable to profits and that they have contractionary effects on GDP in Latin American countries.     

激励农村信用社引进民有资本的战略投资者

农村信用社改革的方向之一是其法人治理结构应体现"民有资本民营"要求,但由于农村信用社的股权高度分散,股东素质低下,自我管理能力薄弱,再加之省级政府(省级联社)强烈的行政干预,导致其法人治理结构呈现"民有资本官营"特征。应通过加大政策扶持力度,激励农村信用社引进民有资本的战略投资者,提高自我管理能力,促使"民有资本官营"回归"民有资本民营"。这将有利于保持农村信用社县(市)法人地位的长期稳定,实现商业化可持续发展目标与增强农村金融服务功能有机统一;强化省级联社的公共服务职能。     

Economic liberalisation,gender wage inequality and welfare

The article develops a 3-sector general equilibrium model appropriate for economies with female labour oriented export sector to examine the effects of economic liberalisation policies on gender based wage inequality. It is assumed that there exist disparities in efficiencies between male and female labour due to skewed access to education and health, and differences in their spending patterns leading to differential effects of respective wages on their nutrition. The results indicate that tariff cut may reduce gender wage inequality, but may have detrimental effects on welfare; while foreign capital inflow may accentuate the inequality, despite improving the welfare of the economy. However, government policies to increase the provision of education and health have favourable effects on gender wage inequality but may be welfare deteriorating. Thus, the article provides a theoretical explanation to empirical evidences of diverse effects of liberalisation on gender wage inequality and explains the possibility of a trade-off between gender inequality and social welfare.     

Financial development and private investment in Sub-Saharan Africa

This study examines the relationship between financial sector development and private investment in Sub-Saharan Africa. It uses panel data covering the period 1991-2004 from 18 countries in Africa. The main findings of the study are as follows: there is a negative relationship between interest rate and private investment, signaling large interest rate spreads in African economies. It is also found that both the credit to the private sector and the turnover ratio have significant relationships with private investment. However, the effect of turnover ratio on investment is insignificant. The insignificance of the stock market indicator reflects the low stage of stock market development in most of the African economies. In addition, it is found that the informal sector is still large and has positive effects on private investment and that institutional variables play a key role in determining the level of private investment in Africa.     

Trade Liberalisation,Exit, and Output and Employment Adjustments of Australian Manufacturing Establishments

This paper investigates three potential sources of Australia’s manufacturing productivity gains from trade liberalisation in the mid‐1990s: the exit of inefficient establishments, economies of scale, and the reduction in x‐inefficiency via employment reduction. We use manufacturing establishment level data and exploit the intersectoral variation in the effective rates of assistance (ERA) to see how businesses adjusted to trade liberalisation during the period. We find the documented productivity gains to be mostly accounted for by the reduction in x‐inefficiency through employment shedding in industries experiencing a high degree of trade liberalisation. We find little evidence that the exit of inefficient establishments in highly liberalised industries contributes to productivity gains. In fact, we find that the more productive establishments are more likely to exit, perhaps reflecting product switching by these businesses to make more profitable use of inputs. Similarly, there does not appear to be a strong relationship between the extent of trade liberalisation and output adjustments. However, we do find indicative evidence of an overall productivity‐enhancing effect through economies of scale. These findings suggest that, at least for the case of Australia, the ease of making employment adjustments can be crucial for policies such as trade liberalisation to have the desired effect. In addition, trade liberalisation may provide incentives for domestic producers to seek more profitable use of their inputs and to move further downward along their cost curves. We think further studies assessing the productivity gains from product switching and economies of scale effects in both liberalised and non‐liberalised industries and focusing on the interplay between labour market policy and firm adjustments would be valuable.     

Changing Role of Services in the Socialist Countries of Eastern Europe

Development of the service sector in the socialist countries of Eastern Europe has up to now been substantially affected by the domination of a so-called Smith-Marx-Lenin theorem under which a large part of the service sector is considered to be ‘non-productive’. It has resulted in a clear under-development of the service sector in the national economies of these countries. This is well illustrated by the figures on sectoral structure of GDP, distribution of fixed capital assets, investment outlays and employment. Recently, however, the perception of services seems to have undergone considerable change and there is a growing concern in most of the said countries about the further development of services. It has its grounds in both internal and external factors.     

Productivity Versus Employment: Quantifying the Economic Effects of an EU–Japan Free Trade Agreement

The European Union and Japan recently entered into negotiations over a bilateral free trade agreement intended to stimulate growth and create wealth. Since customs duties are already low, the success of the liberalisation process hinges on the elimination of non‐tariff barriers. The purpose of this paper is to shed light on two possible liberalisation scenarios: a less ambitious liberalisation and a comprehensive liberalisation. In contrast to classic studies, our paper builds on the modern trade literature, accounting for the dominance of intra‐industry trade in both economies and the existence of heterogeneous firms. Furthermore, we model a search‐and‐matching labour market, allowing us to quantify employment effects of trade liberalisation. We find that a comprehensive liberalisation increases Japanese GDP by 0.86 per cent, whereas the EU experiences only an additional 0.21 per cent of real GDP growth. Most of the growth in real GDP is due to firms' efficiency gains, whereas unemployment is reduced by only a small amount. Other world regions experience small reductions of GDP due to trade diversion effects.     

Multinational enterprise strategy,foreign direct investment and economic development: the case of the Hungarian banking industry

This paper examines foreign direct investment (FDI) in the Hungarian economy in the period of post-Communist transition since 1989. Hungary took a quite aggressive approach in welcoming foreign investment during this period and as a result had the highest per capita FDI in the region as of 2001. We discuss the impact of FDI in terms of strategic intent, i.e., market serving and resource seeking FDI. The effect of these two kinds of FDI is contrasted by examining the impact of resource seeking FDI in manufacturing sectors and market serving FDI in service industries. In the case of transition economies, we argue that due to the strategic intent, resource seeking FDI can imply a short-term impact on economic development whereas market serving FDI strategically implies a long-term presence with increased benefits for the economic development of a transition economy. Our focus is that of market serving FDI in the Hungarian banking sector, which has brought improved service and products to multinational and Hungarian firms. This has been accompanied by the introduction of innovative financial products to the Hungarian consumer, in particular consumer credit including mortgage financing. However, the latter remains an underserved segment with much growth potential. For public policy in Hungary and other transition economies, we conclude that policymakers should consider the strategic intent of FDI in order to maximize its benefits in their economies.     

Financing patterns in transition economies: Privatized former SOEs versus ab initio private firms

We employ 37,987 firms in 30 transition economies to investigate the relation between the origins of private firms and their financing patterns. We find that relative to ab initio (from the beginning) private firms, privatized former state-owned enterprises (SOEs) finance a higher proportion of their fixed assets from bank finance (especially from state-owned banks) and supplier credit. We argue that privatized former SOEs continue to benefit from the political and financial connections established during their SOE era. We document that country governance, financial development and legal origins play an important role in the financing patterns of privatized versus private firms.     

International entrepreneurship, venture capital networks, and reinvestment decisions

Prior research has established that venture capitalists (VCs) may face significant obstacles in financing ventures from emerging or transition economies. Such hurdles are usually attributed to the weaknesses of host countries’ institutional systems, especially regulatory. These institutional pitfalls may thwart VCs’ ability to exit a portfolio company leading to lower returns than expected. Developing this approach, we argue that exit strategies may also be difficult to execute when VCs expand into advanced economies although for different reasons. Thus, we show that both necessity entrepreneurship prevalent in emerging economies and opportunity entrepreneurship prevalent in advanced economies are positively associated with the number of investment rounds received by portfolio companies. In contrast, we establish that VC firm capital and network density are negatively associated with the number of rounds provided to portfolio companies across distinct institutional environments. This suggests that VCs may improve their performance by choosing an appropriate strategy to navigate unfamiliar institutional environments to minimize their liability of foreignness. Finally, we find that the interaction of VC capital and network density is positively related to the number of VCs’ investment rounds. Apparently, resource-rich VC firms may not fully realize the informational benefits of their dense “knowledge networks” due to insufficient collaboration with partners. At the same time, such VCs may no longer enjoy access to free information flows from prospective allies. Hence, network density and superior resources combined may lead to a greater number of investment rounds.     

Fiscal Decentralization and Economic Integration in Mercosur: Argentina and Brazil

ABSTRACT

This article examines the relationship between economic integration and fiscal decentralization for Argentina and Brazil. Economic openness adds costs and benefits to fiscal decentralization, beyond those analyzed in closed economies. The relationships among variables with panel data for the period 1988–2005 are estimated. The innovation of the article lies in considering decentralization at the level of states/provinces. In Brazil, the effect of openness on decentralization is negative and significant, both for expenditures and revenues; in Argentina, the effect is negative or not significant. This difference between countries is based on the different structure of subnational government financing.