Export rivalry,vertically-related markets,and optimal public ownership policy

This paper considers the optimal public ownership policy of an upstream firm which competes with a foreign private rival. Both firms supply a produced input to the domestic and foreign downstream firms that compete in an export market. The paper shows that complete privatization of the domestic upstream firm is never optimal. It will likely be fully nationalized if its market share is high, the domestic downstream firms' market share is low, and the total number of firms in the downstream is large. Simulation results reveal that the public firm's optimal profit margin may be negative and that the government ownership level may exhibit a reswitching phenomenon as the number of domestic downstream firms keeps growing. The paper sheds light on the possibility of using government ownership policy as a pseudo-trade and industrial policy.     

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.     

Privatization,Underpricing, and Welfare in the Presence of Foreign Competition

We analyze privatization in a differentiated oligopoly setting with a domestic public firm and foreign profit‐maximizing firms. In particular, we examine pricing below marginal cost by the public firm, the optimal degree of privatization, and the relationship between privatization and foreign ownership restrictions. When market structure is exogenous, partial privatization of the public firm improves welfare by reducing public sector losses. Surprisingly, even at the optimal level of privatization, the public firm's price lies strictly below marginal cost, resulting in losses. Our analysis also reveals a potential conflict between privatization and investment liberalization (i.e., relaxing restrictions on foreign ownership) in the short run. With endogenous market structure (i.e., free entry of foreign firms), partial privatization improves welfare through an additional channel: more foreign varieties. Furthermore, at the optimal level of privatization, the public firm's price lies strictly above marginal cost and earns positive profits.     

The choice of ownership structure: Evidence from Russian mass privatization

We use a large data set of Russian manufacturing firms to describe the ownership structure in the Russian industry at the end of the mass privatization program in 1994 and its subsequent evolution. The data shows a high, but gradually decreasing ownership stakes of firm insiders (managers and workers). We estimate the effect of a wide range of firm characteristics on the decision to privatize, the initial ownership structure after privatization, and on subsequent changes of ownership stakes. We test and find support for several predictions of the model by Aghion and Blanchard (1998). For example, collusion among workers makes them more reluctant to sell shares to outsiders. Firms in financial distress show a higher incidence of insiders selecting the option of privatization leading to high insider ownership. This can be explained by their desire to insure against unemployment in the case of restructuring by outsiders. No evidence is found of a sequencing in privatization according to the performance of firms before privatization. A methodological novelty of this paper is the application of a tobit model with sample selection to the choice of ownership stakes.     

Lack of commitment to future privatization policies may lead to worst welfare outcome

We investigate the welfare consequences of a lack of commitment to future privatization policies. The government implements a privatization policy after the competition structure is determined by the entry of private firms. We find that in an equilibrium, the government fully privatizes (nationalizes) a public firm if private firms expect that the government fully privatizes (nationalizes) the public firm. This is because an increase in the number of firms entering a market increases the government's incentive to privatize the public firm, which mitigates future competition and stimulates entries. The full-privatization equilibrium is the worst privatization policy among all possible (either equilibrium or non-equilibrium) privatization policies for welfare because it causes excessive market entry of private firms. Partial commitment of a minimal public ownership share may mitigate this problem.     

Imported inputs and privatization in downstream mixed oligopoly with foreign ownership

This paper examines welfare implications of privatization in a mixed oligopoly with vertically related markets, where an upstream foreign monopolist sells an essential input to public and private firms located downstream in the domestic country. The impact on domestic welfare of privatizing the downstream public firm is shown to contain three effects. The first is an output distortion effect, which negatively affects welfare since privatization decreases the production of final good for consumption. The second is an input price lowering effect resulting from a decrease in derived demand for the input. When the level of privatization increases, a decrease in final good production lowers input demand, causing input price to decline and domestic welfare to increase. The third is a rent‐leaking effect associated with foreign ownership in the downstream private firm. The rival domestic firm strategically increases its final good production, causing profits accrued to foreign investors to increase and domestic welfare to decline. Without foreign ownership in the downstream private firm, the optimal policy toward the public firm is complete privatization as the output distortion effect is dominated by the input price lowering effect. With foreign ownership, however, complete privatization can never be socially optimal due to the additional negative impact on domestic welfare of the rent‐leaking effect. We further discuss implications for domestic welfare under different privatization schemes (e.g., selling the privatization shares to the upstream foreign monopolist or to the rival domestic firm).     

The restructuring of large firms in the Slovak Republic1

This paper examines case study evidence of large Slovak firms chosen to represent a wide range of initial conditions, privatization techniques and success with restructuring. We document the ownership changes and restructuring actions of firms. We then re-examine several hypotheses about firm restructuring in the light of this new evidence. In particular, we show that the majority of large Slovak firms have successfully restructured in the absence of foreign investors and government-led restructuring programmes. The study also generates some new queries on the effectiveness of different privatization methods in enhancing corporate governance and improving access to skills and capital. We find that privatization to insiders through management-employee buy-outs did not hamper firm restructuring, at least in the initial years after privatization, as the new owners (old managers) invested heavily in new technology, laid off a substantial part of their workforce, sought foreign partnerships, and were prepared to sell controlling stakes to outsiders in return for fresh financial resources. The evidence also suggests that the mass privatization programme in the Slovak Republic did not result in weak corporate governance since it was followed by a rapid consolidation of outsider ownership. This is in contrast to the anecdotal evidence for Georgia, Russia and Ukraine which opted for mass privatization to insiders (managers and employees)     

企业改制模式和改制绩效——基于企业数据调查的经验分析

本文以上世纪90年代后半期的企业调查数据为基础,通过建立经济计量模型来研究公有企业的改制绩效,通过相应的技术处理消除企业的各种先天因素或改制前固有的优势,试图测试改制是否能够确实激发出显著的效率效应。分析发现,向私有产权方向改制的企业效率得到显著提高;不同的改制模式是改制绩效的重要决定因素,经营者持大股从效率上来讲是最优的改制方式,而平均分配的股份合作制的改制方式则具有较差的业绩效果。我们还讨论了其原因,以及为什么中国现阶段特定制度环境下最优的公司治理结构是大股东控股。我们认为给定当前制度背景下,最佳的改革方案之一是股权向经营者集中,股权合理定价。因为只有市场的初次分配是有效率的,才能得到收入再分配的源泉。在此基础上,国家可通过各种税收设计,进行较为公平合理的收入再分配。     

POST‐PRIVATIZATION OWNERSHIP AND FIRM PERFORMANCE: A LARGE META‐ANALYSIS OF THE TRANSITION LITERATURE

This paper aims to perform a large‐scale meta‐analysis of the relationship between post‐privatization ownership and firm performance in Central and Eastern Europe and the former Soviet Union. Baseline estimation of a meta‐regression model that employs a total of 2,894 estimates drawn from 121 previous studies indicated the superior impact of foreign ownership on firm performance in comparison with state and domestic private entities. Furthermore, the estimation of an extended meta‐regression model that explicitly controls for the idiosyncrasies of transition economies and privatization policies strongly suggested that differences between countries in location, privatization method, and speed of policy implementation strongly influence the link between post‐privatization ownership structure and firm performance. We also found that these factors not only cause a remarkable gap between countries in terms of ex post improvement in firm performance but also significantly affect the interrelationship between foreign investors, domestic outsider owners, and firm managers, and the relative superiority of various domestic outsiders. Conclusive evidence of the harm caused to ex post firm performance by voucher privatization is one of the most noteworthy empirical findings in this paper.     

Can privatization be a catalyst for environmental R&D and result in a cleaner environment?

In this paper we explore whether privatization helps to catalyze a firm's environmental research and development (ER&D) and improve environmental quality. By defining ER&D as the effort undertaken by a firm to reduce its pollution per unit of output, we find in a duopoly framework that privatization cannot catalyze both public and private firms’ ER&D efforts simultaneously; it can increase one but decrease the other firm's investment, or it may even lower both firms’ ER&D investments. Moreover, when production causes severe environmental damage, or the imposition of environmental taxes poorly internalize the pollution externality, privatization may result in a poorer environment. For the sake of having a cleaner environment, policy-makers can impose higher environmental taxes on a highly polluting industry when it is being privatized.     

Quantity competition vs. price competition under optimal subsidy in a mixed oligopoly

This paper reconsiders the literature on the irrelevance of privatization in mixed markets within which both quantity and price competition are investigated under product differentiation. By allowing for partially privatization of a state-controlled firm, we explore competition under different timings of firms' moves and derive the conditions under which an optimal subsidy allows to achieve maximum efficiency. We show that, irrespective of the mode of competition, while the ownership of the controlled firm is irrelevant when firms play simultaneously, it matters when firms compete sequentially, requiring the leader to be publicly-owned for an optimal subsidy to restore the first-best. The paper also focuses on the extent to which a subsidy is needed to attain the social optimum in the considered scenarios, providing an ordering which highlights the subsidy equivalence between Cournot (Bertrand) private leadership and simultaneous Bertrand (Cournot) under duopoly, and the dominance of the former in oligopoly.     

Optimal privatization and uniform subsidy policies: A note

The privatization neutrality theorem states that the share of public ownership in a firm does not affect welfare under an optimal uniform tax‐subsidy policy. We revisit this neutrality result. First, we investigate the case in which the private firm is domestic. We show that this neutrality result does not hold unless public and private firms have the same cost function. Next, we investigate a case in which both domestic and foreign investors own the private firm. We show that the optimal degree of privatization is never zero, and thus, the neutrality result does not hold, even when there is no cost difference between public and private firms.     

The impact of privatization on firm performance in a transition economy

The Vietnamese privatization programme, launched in 1992, differs from the usual Western privatization programmes in terms of the residual percentage of shares owned by the state and the portion of shares owned by insiders. This begs the question whether these differences influence the effects of the programme on firm performance. This study measures the impact of privatization on firm performance in Vietnam by comparing the pre‐ and post‐privatization financial and operating performance of 121 former state‐owned enterprises (SOEs). We find significant increases in profitability, sales revenues, efficiency and employee income. Results of applying the ‘difference‐in‐difference’ (DID) method, wherein a control group of firms is used to pick up the influence of other determinants of firm performance, suggest that the performance improvements may indeed be associated with equitization. Regression analyses reveal that firm size, residual state ownership, corporate governance and stock market listing are key determinants of performance improvements.     

Block trades and the benefits of control in Slovenia1

Ownership and control have been concentrating in most transition countries. The consolidation of control introduces changes in the power distribution within privatized firms and, most importantly, redirects the corporate governance problem to a conflict between large and small shareholders. In this study, we evaluate the ownership changes in Slovenian privatized firms through an analysis of stock price reactions to the entrance of a new blockholder (the shared benefits of control) and through an estimation of the premiums paid for large blocks (the private benefits of control). We provide evidence of and discuss the reasons for the failures of the privatization investment funds in implementing control over firm managers and in promoting the restructuring of firms in the first post‐privatization years.     

国企民营化与企业创新效率：促进还是抑制?

文章基于混合所有制改革的背景，从创新效率的视角考察了微观创新主体民营化前后创新行为的变化。研究发现，民营化抑制了企业的创新效率，企业的专利数量显著减少，这种影响在缺乏原国有大股东制衡、无系族的上市公司以及外部产权保护较弱的地区更加显著，而且相对于创业型企业，民营化企业的创新效率更低。进一步研究发现，民营化抑制企业创新效率的一个重要途径是关联交易显著增加、投资显著减少，民营化后非国有大股东更多地表现出掏空动机，减少了创新活动，降低了创新效率。文章的研究结论为理解民营化企业的效率提供了新视角，有助于我们正确认识和理解新兴转轨经济体的民营化行为，而且对于监管层如何推进混合所有制改革具有重要的政策启示。     

Debt shifting and ownership structure

Previous theoretical studies on the debt shifting behavior of multinationals have assumed affiliates of multinationals to be wholly owned. We develop a model that allows a multinational firm to determine both the leverage and ownership structure in affiliates endogenously. A main finding is that affiliates with minority owners have less debt than wholly owned affiliates and therefore a less tax-efficient financing structure. This is due to an externality that arises endogenously in our model, where costs and benefits of debt shifting are shared asymmetrically between minority and majority owners. Our findings provide a theory framework for recent empirical findings.     

Optimal degree of privatization and the environmental problem

We determine the optimal degree of privatization in a mixed duopoly when the environmental problem exists. With regard to the ownership of the private firms, we analyze two cases: (h) the private firm is owned by domestic private investors and (f) it is owned by foreign private investors. A comparison of the two cases presents the following results. Partial privatization is always desirable in (h), and the optimal degree of privatization is independent of the degree of environmental damage. However, in (f), whether partial privatization is desirable or not depends on the degree of environmental damage: there are cases where full privatization or full nationalization is optimal.     

How does privatization work in China?

Bai, Chong-En, Lu, Jiangyong, and Tao, Zhigang—How does privatization work in China?Using a comprehensive panel data set of China’s state-owned enterprises, we investigate the impacts of privatization on social welfare and firm performance indicators. The privatization of China’s state-owned enterprises was found to have little impact on the change of firm employment, but it did lead to increasing sales and hence higher labor productivity. Meanwhile, there was a gain in firm profitability contributed to mostly by the reduction of managerial expenses to sales. The impact of privatization was sustainable in the long run, and was more pronounced when state ownership was reduced to minority position as opposed to majority position.     

Joint ownership and interconnection pricing in network industries

This paper investigates a vertical market structure called joint ownership, where a monopolistic upstream firm is jointly owned and operated by competing downstream firms. As such, a common interconnection price to an upstream bottleneck is determined by bargaining among the downstream firms. We show that (1) joint ownership can be superior to the other ownership structures by overcoming vertical externality of double marginalization; (2) collusive outcomes, however, may arise surrounding the setting of common interconnection price; (3) an overall performance of joint ownership depends crucially upon how equity shares are initially distributed and which bargaining rules are employed; and finally (4) a policy measure to promote downstream competition may have ambiguous consequences under joint ownership. Some managerial and political implications in implementing joint ownership in practice are also provided.     

OBSERVABLE REPUTATION TRADING*

Is the reputation of a firm tradable when the change in ownership is observable? We consider a competitive market in which a share of owners must retire in each period. New owners bid for the firms that are for sale. Customers learn the owner's type, which reflects the quality of the good or service provided, through experience. After observing an ownership change they may want to switch firms. However, in equilibrium, good new owners buy from good old owners and retain high‐value customers. Hence reputation is a tradable intangible asset, although ownership change is observable.