Privatization Revisited: The Effects of Foreign and Domestic Owners on Corporate Performance,” Working Paper

Privatization of state enterprises is often viewed as a necessary condition for improved corporate performance, but many studies suffer from methodological and data problems. We use a 1992-98 panel of the population of Czech industrial firms to assess the effect of mass privatization on corporate performance. Using numerous performance indicators, we find that foreign owners unambiguously improve long-term performance of the former state-owned enterprises. However, the results with respect to privatization to domestic owners are much less impressive. Our study hence provides strong support for the hypothesis that foreign investment improves corporate performance, but it provides very sobering evidence with respect to the hypothesis that privatization to domestic owners (the majority of cases in transition economies) improves performance