The Emergence of Concentrated Ownership Structures in East Germany: the implications for enterprise restructuring ?

In the transitional economies of East and Central Europe, privatization is widely considered essential for transforming the large state-owned enterprises. However, eager to expose the public enterprises to ‘hard budget constraints’, economists have neglected the importance of who the owners are. Studies of ownership structures and post-privatization restructuring in east Germany provide evidence that ownership matters for transformation success. The adoption of west German institutions in the east and the sale of state industrial property in concentrated shares to ‘insider’ investors seem to have created good conditions for the long-term committed investments essential for the rebuilding of tangible and intangible assets in east German enterprises. However, the control structures of a sample of enterprises reveal a wide range of investment strategies between types of corporate investors. Just as legal and financial institutions set constraints on ownership structure, the ownership structure sets constraints on the range of investment choices. Whether committed investments occur will depend on constrained strategic decisions of the new private owners.