Choice of Ownership Structure and Firm Performance: Evidence from Estonia

In this paper we use rich panel data for a representative sample of Estonian enterprises to analyse diverse issues related to the determinants of ownership structures and ownership changes after privatisation. A key focus is to determine whether ownership changes are related to economic efficiency. While employee owned firms are found to be much more prone than other firms to switch ownership categories, often “employee owned” firms remain “insider-owned” as ownership passes from current employees to managers and former employees. Logit analyses of the determinants of ownership structures and ownership changes provides mixed support for several hypotheses. As predicted: (i) wealth and resource constraints play a crucial role in the determination of ownership, with foreigners buying firms with the highest equity levels and insiders buying firms with the lowest equity valuations; (ii) risk aversion explains subsequent ownership changes, especially away from employee ownership; (iii) allocation of ownership depends on the pre-privatisation origin and location of the firm, and these factors also influence subsequent ownership changes. Finally we compare our findings with those achieved by using more conventional approaches to analyze efficiency that use very similar data. Reassuringly the evidence presented in this paper is consistent with the view that efficiency considerations drive ownership changes (while earlier analysis for Estonia and for many other transition economies has identified the impact of ownership on economic performance.) However, the findings in this paper also establish that there are important influences besides economic efficiency that affect enterprise ownership and ownership changes.http://deepblue.lib.umich.edu/bitstream/2027.42/39945/3/wp560.pd

Choice of ownership structure and firm performance: Evidence from Estonia

In this paper we use rich panel data for a representative sample of Estonian enterprises to analyse diverse issues related to the determinants of ownership structures and ownership changes after privatisation. A key focus is to determine whether ownership changes are related to economic efficiency. While employee owned firms are found to be much more prone than other firms to switch ownership categories, often “employee owned” firms remain “insider-owned” as ownership passes from current employees to managers and former employees. Logit analyses of the determinants of ownership structures and ownership changes provides mixed support for several hypotheses. As predicted: (i) wealth and resource constraints play a crucial role in the determination of ownership, with foreigners buying firms with the highest equity levels and insiders buying firms with the lowest equity valuations; (ii) risk aversion explains subsequent ownership changes, especially away from employee ownership; (iii) allocation of ownership depends on the pre- privatisation origin and location of the firm, and these factors also influence subsequent ownership changes. Finally we compare our findings with those achieved by using more conventional approaches to analyze efficiency that use very similar data. Reassuringly the evidence presented in this paper is consistent with the view that efficiency considerations drive ownership changes (while earlier analysis for Estonia and for many other transition economies has identified the impact of ownership on economic performance.) However, the findings in this paper also establish that there are important influences besides economic efficiency that affect enterprise ownership and ownership changes.Privatisation, ownership change, employee ownership, transition economies, Estonia

Choice of Ownership Structure and Firm Performance: Evidence from Estonia

In this paper we use rich panel data for a representative sample of Estonian enterprises to analyse diverse issues related to the determinants of ownership structures and ownership changes after privatisation. A key focus is to determine whether ownership changes are related to economic efficiency. While employee owned firms are found to be much more prone than other firms to switch ownership categories, often “employee owned” firms remain “insider-owned” as ownership passes from current employees to managers and former employees. Logit analyses of the determinants of ownership structures and ownership changes provides mixed support for several hypotheses. As predicted: (i) wealth and resource constraints play a crucial role in the determination of ownership, with foreigners buying firms with the highest equity levels and insiders buying firms with the lowest equity valuations; (ii) risk aversion explains subsequent ownership changes, especially away from employee ownership; (iii) allocation of ownership depends on the pre-privatisation origin and location of the firm, and these factors also influence subsequent ownership changes. Finally we compare our findings with those achieved by using more conventional approaches to analyze efficiency that use very similar data. Reassuringly the evidence presented in this paper is consistent with the view that efficiency considerations drive ownership changes (while earlier analysis for Estonia and for many other transition economies has identified the impact of ownership on economic performance.) However, the findings in this paper also establish that there are important influences besides economic efficiency that affect enterprise ownership and ownership changes.Privatisation, ownership change, employee ownership, transition economies, Estonia

Ownership and Productive Efficiency: Evidence from Estonia

Privatization in Estonia has produced varied ownership configurations. This enables hypotheses on the productivity effects of different ownership forms to be tested. Findings are based on fixed effects production function models and are estimated using a large, random sample of firms. Depending on the particular specification (and relative to state ownership) we find that: i) private ownership is 13-22% more efficient; (ii) all types of private ownership are more productive, though managerial ownership has the biggest effects (21-32%) and ownership by domestic outsiders has the smallest impact (0-15%). The joint hypothesis that privatization coefficients are equal is rejected. Findings are robust with respect to choice of technology and the use of instrumental variable estimates. These results provide only partial support for the standard theory of privatization and stronger support for theorists who argue that some forms of insider ownership may constitute preferable forms of corporate goverance in some circumstances.http://deepblue.lib.umich.edu/bitstream/2027.42/39769/3/wp385.pd

Trends in Employee ownership in Eastern Europe

In countries like Italy, France, Spain and US enterprises where a broad group of the employees have controlling ownership have been quite widespread, while the Scandinavian countries have had few employee owned enterprises. In many countries in Eastern Europe the recent privatization process resulted in a strong wave of employee ownership, however, a wave that soon lost its momentum. The transition from plan to market has been a sort of experiment for analyzing the impact of institutional development. The spread of employee ownership is closely related to the change in both formal and informal institutions. The purpose of this article is to answer the following research questions: Why did employee ownership get so widespread in some countries Eastern Europe? Why did this ownership change relatively fast to other types of ownership? Was the development of employee ownership premature in relation to the development of the East European societies

wage earner or employee owner?

The paper investigates the determinants behind the choice between a wage earner position versus employee ownership. These determinants can be found both at the individual level: desire for selfgovernance, risk aversion, human capital, wealth, mobility; company level: size, complexity, heterogeneity of labor, capital intensity, human capital; and society level: labor market dynamics, social security, role of unions and specific institutional rules for employee ownership. The choice is determined by the possibility for wage-earners to adjust working conditions by exit versus the possibilities and costs for employee to use voice as owners of their company. It is predicted that employee ownership will be found in organizations which are small, homogenous, simple in structure, and with high emphasis on specific human capital. The opportunities of globalization with complex organizations crossing borders/cultures will be more difficult to implement in employee owned companies. Specific external institutions (tax incentives, company laws, privatization opportunities) and innovative internal institutions may change the balance in favor of employee ownership. The predictions are not tested, but illustrated by examples especially from recent evidence from Eastern Europe

A simple model for analysis of the business environment

Societies all over the world are complex systems of human beings interacting with each other for making a living. Understanding these societies is essential for international business whatever the company interacts through foreign trade, outsourcing production or foreign direct investments - FDI. Choice of location makes it necessary to do an analysis of relevant foreign societies. The existing models for these analyses are often too simplified, static and without enough emphasis on key determinants for these societies – their institutions. The quality of institutions is an import part of the explanation for the level of development in different countries (WB 2002, IMF 2005, WEF 2006); but there is no simple link between institutions and economic performance (Rodrik 2004)