The Economic Effects of Privatization: Evidence from a Russian Panel

By using new panel survey data for 1992–1996 for a sample of firms in St. Petersburg we present evidence on the incidence of, changes in, and the effects of ownership and control that have occurred since privatization. We find that ownership changes have been quite fast and are heterogeneous. Ownership by insiders remains very strong and the importance of managerial insider ownership is growing. At the same time, in many firms, ownership by outsiders assumes increasing significance. The links between ownership and control are found to be quite complex. Whether these organizational changes affect economic performance is investigated in a series of preliminary exercises in which we estimate models in “privatization time.“ We find that the impact of privatization per se is quite weak and thus appears to be quite different from what has been found in studies for some other transition economies. In accounting for differences in economic performance, for all performance measures we find support for the hypothesis that the preferred specification includes measures not only of ownership levels at the end of the period but also ownership-transitions and variables which capture variation in the level of control. Bank ownership is shown to be much more effective in improving economic performance than is ownership by individuals. Firms which remain employee owned performed much more poorly than did firms in which managers continued as the dominant owners. However, both types of firms which became owned by managers during the period did very badly, and especially firms which were formerly owned by the state. There is evidence that low and medium levels of managerial power typically have beneficial effects on economic performance. Evidence of the effects of changes in control on economic performance typically is much weaker