Choice of Ownership Structure and Firm Performance: Evidence from Estonia

43 Pages Posted: 20 Jun 2003

See all articles by Derek C. Jones

Derek C. Jones

Hamilton College - Economics Department

Panu Kalmi

Aalto University - Department of Economics

Niels Mygind

Copenhagen Business School - Center for East European Studies (CEES)

Date Written: May 2003

Abstract

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.

Keywords: Privatisation, Ownership Change, Employee Ownership, Transition Economies, Estonia

JEL Classification: G3, J5, P2, P3

Suggested Citation

Jones, Derek C. and Kalmi, Panu and Mygind, Niels, Choice of Ownership Structure and Firm Performance: Evidence from Estonia (May 2003). William Davidson Institute Working Paper No. 560; BOFIT Discussion Paper No. 7/2003. Available at SSRN: https://ssrn.com/abstract=405840 or http://dx.doi.org/10.2139/ssrn.405840

Derek C. Jones (Contact Author)

Hamilton College - Economics Department ( email )

198 College Hill Road
Clinton, NY 13323
United States
315-859-4381 (Phone)
315-859-4477 (Fax)

Panu Kalmi

Aalto University - Department of Economics ( email )

PO Box 1210
Helsinki, 00101
Finland
+358 9 431 38 283 (Phone)
+358 9 431 38 738 (Fax)

Niels Mygind

Copenhagen Business School - Center for East European Studies (CEES) ( email )

Howitzvej 60
Frederiksberg, 2000
Denmark
(+45) 38 15 30 32 (Phone)
(+45) 38 15 30 37 (Fax)

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