Cheryl W. Gray

When Does Privatization Work? The Impact of Private Ownership on Corporate Performance in the Transition Economies

This paper compares the performance of privatized and state firms in the transition economies of Central Europe, while controlling for various forms of selection bias. It argues that privatization has different effects depending on the types of owners to whom it gives control. In particular, privatization to outsider, but not insider, owners has significant performance effects. Where privatization is effective, the effect on revenue performance is very pronounced, but there is no comparable effect on cost reduction. Overlooking the strong revenue effect of privatization to outsider owners leads to a substantial overstatement of potential employment losses from postprivatization restructuring.

Bank-Led Restructuring in Poland: An Empirical Look at the Bank Conciliation Process

Since 1992, Poland has been considered a model of commercial banking reform among transition economies. Its Enterprise and Bank Restructuring Program (EBRP) tried to force state-owned commercial banks to build institutional capacity and to resolve problem loans through workouts, liquidation, loan sales, or pay back. The authors reviewed the process and initial outcomes of the bank-led conciliation process. A companion paper looks at experience with the other resolution paths under the EBRP. The outcome is decidedly mixed. The EBRP forced banks to confront their problems, helped them build institutional capacity, and furthered the task of weeding out and closing unviable firms. Despite these strengths, the data suggest that the bank-led conciliation process has had limited power to promote firm restructuring or privatization. The agreements themselves included few tangible requirements for operational or management change. The first two years of implementation saw a slowdown in the layoffs rate, a decline in average operating profitability, and little real privatization. The main impact of conciliation appears to have been to reduce debt service. Weaker banks tended to be more lenient, swapping more debt for equity, and had greater difficulty forecasting future enterprise performance. The EBRP was a good start, but continued work is needed to build strong banks that can impose effective corporate governance on enterprises that need to restructure.