Enterprise performance and ownership: The case of Ukraine

In this paper, we use a unique enterprise level random survey of 150 firms in Ukraine to test hypotheses on the relationship between enterprise performance and ownership in transitional economies. In particular, we explore whether privatisation has yielded improved company performance and whether specific ownership forms (insider, manager, worker, and outsider) have led to differentiated behaviour at the enterprise level. Our analysis also explores the determinants and ramifications of barter, a widespread phenomenon across the former Soviet Union. We refute the hypothesis that private ownership per se is associated with improved performance, and try to isolate any positive performance effects from outsider ownership. However, we do isolate some clear ownership effects, associated with insider ownership. We find barter to be associated with lower profitability, and to be less common in privatised firms.     

The Performance of Public and Private Enterprise under Conditions of Active and Passive Ownership and Competition and Monopoly

Privatisation is driven by the belief that public ownership is cost inefficient, in particular under monopoly. However, some theoretical and empirical studies have questioned whether privatisation will necessarily lead to efficiency gains. This paper focuses on the impact of ownership when owners can be either active or passive. Active owners decide on output, whereas passive owners delegate this decision to a risk-averse manager. It turns out that managerial slack as reflected in the marginal costs will actually be the same or higher in a private monopoly than under public ownership. The impact of entry is theoretically ambiguous, but an increased number of firms in an oligopoly may lead to lower efficiency.     

ON THE ROBUSTNESS OF PRIVATE LEADERSHIP IN MIXED DUOPOLY

We investigate a mixed duopoly where a state‐owned public enterprise competes against a profit‐maximising private enterprise. We analyse whether private leadership or public leadership is robust in the observable delay game. We find that private leadership is always risk dominant. We also investigate how ownership structure in a public firm affects the equilibrium distribution of roles. We find that the roles are as follows: (1) Cournot, when the degree of privatisation is low, (2) private leadership, when it is middle, (3) both private leadership and public leadership, when it is high. The result implies that private leadership is again more robust.     

Post-privatization corporate governance and firm performance: The role of private ownership concentration,identity and board composition

We examine and analyze the post-privatization corporate governance of a sample of 52 newly privatized Egyptian firms over a period of 10 years, from 1995 to 2005. We look at the ownership structure that results from privatization and its evolution; the determinants of private ownership concentration; and the impact of private ownership concentration, identity and board composition on firm performance. We find that the state gives up control over time to the private sector, but still controls, on average, more than 35% of these firms. We also document a trend in private ownership concentration over time, mostly to the benefit of foreign investors. Firm size, sales growth, industry affiliation, and timing and method of privatization seem to play a key role in determining private ownership concentration. Ownership concentration and ownership identity, in particular foreign investors, prove to have a positive impact on firm performance, while employee ownership concentration has a negative one. The higher proportion of outside directors and the change in the board composition following privatization have a positive effect on firm performance. These results could have some important policy implications where private ownership by foreign investors seems to add more value to firms, while selling state-owned enterprises (SOEs) to employees is not recommended. Also, the state is highly advised to relinquish control and allow for changes in the board of directors following privatization as changing ownership, per se, might not have a positive impact on firm performance unless it is coupled with a new management style.     

Comparative Analysis of Ownership Transformation and Performance Relationship among Major and Regional Banks in Australia

This article attempts to clarify existing doubts with respect to the performance of private and privatised banks versus public banks; that is, it is an attempt to clarify the ownership–performance relationship. The analysis takes explicit account of the privatisation transformation, including its intermediary stage, and the status of the economy. The ownership–performance model is estimated using cross‐sectional time‐series data and is used to test the influence of ownership changes on performance. Alternative performance measures are considered. The empirical findings show that ownership transformation in the case of regional banks has resulted in improved performance, whilst the benefits in the case of major banks were not significant, even though these banks have become more competitive.     

A constitutional theory of public enterprise

This article rationalizes public enterprise by analyzing the constitutional choice between private and public ownership of production arrangements. Arguing that results depend on who does the choosing, the article compares choices by self-governing citizens with choices by self-directed governmental officials. The resulting institutional theory identifies four conditions that cause citizens to favor public over private ownership. None of the conditions refers to the standard concept of economic efficiency, which guides most economic comparisons of public and private enterprise.     

Competition and Privatisation Policies in a Differentiated Mixed Oligopoly: The Pay‐off‐interdependence Approach

I revisit the relationship between competition and privatisation policies in a mixed oligopoly with differentiated goods, following the pay‐off‐interdependence approach in the fashion of Matsumura and Okamura. We find that although the intensity of market competition increases with the degree of importance of each firm's relative performance, the optimal degree of privatisation can decrease in a differentiated goods mixed oligopoly in both the increasing marginal costs case and the constant marginal costs case. Further, given the degree of importance of each firm's relative performance and the number of private firms, we find that the optimal degree of privatisation can decrease as the degree of product differentiation declines. Finally, by considering an alternative‐pay‐off model in both cases, we compare the optimal degree of privatisation of the public firm.     

Privatisation and Transition in Albania

This article considers the privatisation policy and its role in the transition to a market economy in Albania. The disintegration of the old regime took place over a much longer time than in other Central and East European countries, resulting in chaos and a political vacuum in which no systematic or effective policy could be formulated. The new government, committed to fundamental reforms necessary for a market economy, did not take power until after the second general election in March 1992. One outcome of this long pre-transition period was that the privatisation programme had to evolve gradually in the course of transformation, without ever having been planned in a comprehensive and integrated manner. Privatisation proceeded on five different fronts: small privatisation, privatisation of agriculture, housing, small and medium-sized enterprises and mass privatisation. The article discusses the progress of each aspect and provides up-to-date information and data on their progress. The privatisation of agriculture and housing were the most crucial aspects of the overall policy, with significant impacts on economic growth and the progress of the transformation programme. The privatised agricultural sector grew very rapidly and made a major contribution to pulling the whole economy out of the 'transformational recession'. Privatised housing created a significant wealth effect amongst the urban population, providing many of them with collateral or start-up capital. The privatisation of state-owned enterprises, however, was carried out with much more difficulty and controversy. Although auctions were to be the main method of transfer, ensuring a significant income for the treasury, in practice many enterprises were privatised through other methods, bringing in less income and giving rise to allegations of political favouritism. Another aspect of privatisation was the weak corporate governance mechanism which replaced state ownership. Many small and medium-sized enterprises (probably about half) were sold or transferred to their employees, without any outsider interest. The performance of this sector has to be monitored closely in order to assess the impact of massive insider privatisation, reminiscent of Russia's privatisation programme. Mass privatisation too, by distributing enterprise shares amongst the general public, resulted in the increased power of insiders. The shares of nearly 100 enterprises were transferred to the private sector over the first year of the implementation of this programme. Although the privatisation programme progressed very rapidly, no serious attention was paid to problems of corporate governance. Without concentrated ownership or the involvement of financial intermediaries to oversee and monitor the managers, it is unlikely that the expected efficiency gains will be realised. The political crisis resulting from the collapse of informal financial schemes brought the whole reform process, including the privatisation programme, to a halt in early 1997. It is expected that, with a new government in power, there will be a new push for reforms and an increased pace of privatisation. It is hoped that the renewed efforts will also deal with the shortcomings of the previous schemes-particularly the corporate governance issues.     

What Drives the Operating Performance of Privatised Firms?

Using a panel data analysis of Spanish privatised firms, we study how different factors influence the operating performance of divested companies. The results show that it is not privatisation per se but other factors that matter. After controlling for possible sample selection bias related to government timing of divestments, we find that the greater the relinquishment of State control and the smaller the percentage of ownership held by managers and/or employees, the better the firms’ post‐privatisation performance. Moreover, privatisations that are accompanied by liberalisation programmes and occur during buoyant economic cycles turn out to be more successful.     

The effects of upcoding,cream skimming and readmissions on the Italian hospitals efficiency: A population-based investigation

In this paper we analyze the effects of some distortions induced by the prospective payment system, i.e. upcoding, cream skimming and readmissions, on hospitals' technical efficiency. We estimate a production function using a population-based dataset composed by all active hospitals in an Italian region during the period 1998–2007. We show that cream skimming and upcoding have a negative impact on hospitals' technical efficiency, while readmissions have a positive effect. Moreover, the results indicate that private hospitals engage more in cream skimming than public and not-for-profit ones, while we observe no ownership differences regarding upcoding. Not-for-profit hospitals have the highest readmission index. Last, not-for-profit and public hospitals have the same efficiency levels, while private hospitals have the lowest technical efficiency.     

The economic performance of state-owned enterprises in Central and Eastern Europe

This article explores the economic performance of state ownership in the largest non-financial enterprises operating in 13 post-socialist Central and Eastern European (CEE) countries over the period 2007–2013. The largest state-owned enterprises (SOEs) are selected based on the ‘Coface – 500 Top Companies in CEE’ list in 2013. Of these 500 enterprises, 69 were identified as state-owned. All originated in the socialist period. The majority of them are from Poland and Ukraine. SOEs hold a dominant position in energy supply, the oil and gas sector, and transport. We find that the persistence of state ownership in post-socialist countries is caused by incomplete privatisation and the presence of SOEs within strategic sectors. The economic performance of the largest state-owned companies is, on average, comparable to their private counterparts.     

The impact of private vs. public ownership on the level and structure of employment

We examine the effects of private vs. public ownership on the level and structure of employment using uncommonly rich data on the population of Portuguese firms from 1991 to 2009. We find that private ownership is associated with sizeable job losses. This occurs whether we consider privatizations or nationalizations, and the relationship tends to be stronger in the presence of foreign capital. We also find some evidence that private ownership is associated with higher skill utilization, particularly following privatizations and when foreign investment is present. The estimated job losses associated with private ownership are consistent with a theory in which the shift in ownership increases the degree of profit orientation and leads to lower job security.     

Efficiency Wages and Work Incentives in Urban and Rural China

This paper examines incentive-wage effects for production and for managerial/technical workers in both urban and rural Chinese nonagricultural enterprises. We report strong evidence of productivity-enhancing wage behavior among enterprises in all ownership categories. There is also evidence that firms paying higher efficiency wages experience less shirking among their employees. We find that the profit-maximizing potential of incentive-wage setting is not fully exploited, although there is weak evidence that joint ventures come closer to profit-maximizing behavior at this margin of wage/employment behavior than do collectives or state-owned enterprises. J. Comp. Econ., December 2001, 29(4), pp. 645–662. The Ohio State University, 1945 North High St., Columbus, OH 43210 and University of Hawaii at Manoa, Honolulu, Hawaii 96822. © 2001 Elsevier ScienceJournal of Economic Literature Classification Numbers: P23, J31, O15.     

Privatisation and Crime

Abstract
While criminalisation of the Russian economy can partly be explained by privatisation in conditions of underdevelopment of free market institutions, the emphasis on privatisation as the prime cause of crime may lead to gross oversimplification. The present article claims that faster and more radical, rather than slower and partial, privatisation could create less room for criminal behaviour in Russia. Half-measures applied to privatise the Russian economy have contributed to prolonged uncertainty and to a blurred demarcation between the private and government sectors as well as between management and ownership in business enterprises. Prolonged coexistence of the two sectors creates too much opportunity for criminal behaviour. Moreover, an explanation of the growth in crime in Russia is impossible without analysing the legacies of the former communist system, the developments in politics (including demoralisation of the ex-communist state apparatus), cultural factors and the specific features of the privatisation as actually conducted .     

THE RESPONSE OF STATE‐OWNED ENTERPRISES TO IMPORT COMPETITION: EVIDENCE FROM CHINESE MANUFACTURING FIRMS

We examine the wage and employment impact on Chinese firms of an increase in import competition associated with China's WTO accession in December 2001, with an emphasis on state‐owned enterprises (SOEs). We find that both wage and employment are negatively impacted by an increase in import competition, but firms with high state ownership cut employment less and reduce wages more than their private counterparts, suggesting that they prioritize the protection of employment over that of wages. This finding supports the notion that SOEs may have ‘multitask’ responsibilities in terms of protecting employment as well as achieving efficiency. We also find that firms with higher capital intensity reduce their wages less but cut employment more in response to intensified import competition. This provides empirical support for the efficiency wage theory.     

Triangular Relations in Public Service Economics

This paper critically re-examines the restructuring of public services. Four main decision-making phases are identified: the public oversight to be guaranteed to socially sensitive economic activities; the ways of financing them; the economic organisation of the industry; and the production decisions. By focusing on organisation, the paper reinterprets the market structure in public service industries on the basis of the interactions among three main players: users/citizens, the government and the service supplier. It argues that the issue of public versus private ownership has been overemphasised, and that an effective increase in efficiency can be obtained by introducing appropriate incentives for both public and business players. Instead of using a single policy instrument, namely privatisation, public action ought to be informed by an array of organisational solutions.     

Foreign direct investment and host country policies: A rationale for using ownership restrictions

This paper examines host governments' motivation for restricting ownership shares of multinational firms (MNFs) in foreign direct investment (FDI) projects. An MNF with a productivity advantage is willing to invest in a host country. The host government wants to capture the MNF's surplus yet cannot observe it due to the MNF's private information about its firm-specific advantage. In contrast, a joint venture (JV) partner might observe this surplus depending on its ownership share. The host government can alleviate its informational constraints by using ownership restrictions to force a JV. This calls into question the wisdom of calls for ‘liberalizing’ FDI flows by the wholesale elimination of domestic JV requirements. We show that the optimal mechanism involves ownership restrictions that decrease as the size of the MNF's firm-specific advantage increases.     

The Impact of Foreign Entry on Chinese Banks

Utilizing hand collected data concerning foreign ownership in the Chinese banking sector, we examine whether foreign ownership improves the efficiency of Chinese banks. Foreign banks tend to provide cooperation in retail banking rather than in corporate or private banking. We find no robust evidence of an improvement in the efficiency of an average bank that receives foreign strategic investments. However, the bank cost and profit efficiency significantly improve when foreign strategic investments provide retail banking and internal control assistance respectively to local banks. These findings suggest that foreign investment improves local bank efficiency when it transfers technologies that are lacking in local banks.     

Diversification and tunneling: Evidence from Indian business groups

We provide evidence suggesting an important yet largely unexplored motive for the diversified structure of emerging economy business groups is to facilitate expropriation of minority shareholders by controlling insiders through tunneling. Using firm level panel data from India, and defining the core firm of a group as the one with the largest asset base, we find that the relatedness of the activity of a group affiliate to the activity of the core firm is correlated with the wedge between control and cash flow rights of insiders as well as with the opacity in insider ownership. Firms with ownership-control wedge lower and ownership opacity higher relative to a group’s core firm are more likely to be in activities unrelated to that of the core firm. Our findings are strengthened by evidence of tunneling in the same direction, from affiliates with wedge equal to or higher than that of the core firm to affiliates with wedge lower than that of the core firm. Taken together this suggests an expropriation motive for diversification: affiliate firms are located away from a business group’s core firm to serve as destination points for funds tunneled from the group’s core.