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Papers on Privatization

Enterprise Restructuring in Transition: A Quantitative Survey, 2002

(co-authored with Simeon Djankov)

There is now a voluminous empirical literature that analyzes the process of enterprise restructuring in transition economies. We synthesize the results of this literature, using insights from meta-analysis. This method of analysis allows us to use the results of many studies on a similar topic, combining many statistical tests with weak power to produce a single test statistic with larger power. Thus, for each of the questions that we examine, we provide a conclusion that summarizes the composite implications of the whole body of empirical work relevant to the question. We are also able to examine hypotheses that involve comparisons of different sets of studies, asking for example whether privatization is more effective in the CIS or in Eastern Europe. In the survey, we address new and enduring questions of economics, such as the effects of privatization, the importance of different types of owners, the role of managerial incentives versus managerial human capital, the consequences of soft budgets, the effects of competition, and the role of institutions. Hence, this synthesis provides new insights into the relative effectiveness of different reform policies.

Competition and Privatization Amidst Weak Institutions: Evidence from Mongolia
(co-authored with James H. Anderson and Young Lee)
Mongolia's mass privatization program was implanted in a country that lacked the very basic institutions of capitalism. This paper examines the effects of competition and ownership on the efficiency of the newly privatized enterprises, using a representative sample of enterprises and controlling for possible selection biases. Competition has quantitatively large effects, perfectly competitive firms having nearly double the efficiency of monopolies. Enterprises with residual state ownership appear to be more efficient than other enterprises, reflecting an environment where the government was pressured to focus on efficiency and institutions gave little voice to outsider owners.

Glamour and Value in the Land of Chingis Khan
(co-authored with James H. Anderson and Georges Korsun)
Patterns in the cross-section of returns from stocks bought (for vouchers) in Mongolia's privatization program mirror those from developed countries: stocks in companies with high book-to-market ratios subsequently earned returns far bigger than those in companies with low ratios, a result very robust to changes in specification and sample. Features of privatization and of sample generation lead to quick dismissal of certain explanations appearing in previous studies (survivorship, data snooping, and agency). Moreover, risk cannot fully explain the high returns to value. We argue for the unsettling proposition that people bought shares without full regard to price.

Which Enterprises (Believe They) Have Soft-budgets after Mass Privatization? Evidence on the Effects of Ownership and Decentralization in Mongolia
(co-authored with James H. Anderson and Georges Korsun)
To ascertain the prevalence of soft budgets and to find causes of softness, we surveyed Mongolian enterprises, asking whether state aid was expected when financial difficulties arose. One-quarter of enterprises expected soft-budgets, a large proportion of which have central government ownership. We examine causes of soft budgets in addition to state ownership, but the central government variable dominates. These results are confirmed when using instrumental variables or bivariate probit to unmask unmeasured selection effects. Local government ownership has a much weaker effect than does central ownership, suggesting the crucial role of decentralization.