The Impact of Czech Privatisation Methods on Enterprise Performance Incorporating Initial Selection Bias Correction

Abstract

Governments with transitional economies have applied different privatisation methods, from an almost free distribution to the direct sales of state assets. While a free distribution was believed to ensure the political feasibility of the program and its fairness, direct sales, or more generally, standard privatisation methods had a significant advantage in creating concentrated ownership structures as the prerequisite to corporate control and restructuring. Many economists believe that the two goals of mass privatisation, political feasibility and creation of proper ownership incentives, contradict each other and recent empirical comparisons of enterprises seem to support their view. However, all empirical works have been based on the weak assumption that privatisation methods were applied on a randomly selected samples of enterprises, which then allowed for a direct comparison between these enterprises. Our main claim is that governments indeed selected enterprises non-randomly and therefore, the resulting selection bias must be incorporated into the analyses. To show this, we apply a Heckman two-step regression method on a sample of 559 Czech enterprises. The main point of this paper then is that performance is influenced by the selection process and combination of vouchers with outsider owners is preferred over 100% voucherisation.

JEL Classification: L33, P50