Ownership Structure and Enterprise Restructuring in Six Newly Independent States

Enterprises in six newly independent states exhibit large differences in ownership structure, differences that seem to be determined by the method of privatization pursued. Enterprises in countries where the privatization programs favored incumbent managers ended up with heavy ownership by managers; countries that favored mass privatization had the highest proportion of ownership shares held by outside investors. Ownership by outside local investors or the state is not significantly correlated with enterprise restructuring; high foreign ownership is. Djankov investigates the relationship between ownership structure and enterprise restructuring in six newly independent states: Georgia, Kazakstan, the Kyrgyz Republic, Moldova, Russia, and Ukraine. He documents the changing pattern of ownership in 960 privatized manufacturing companies from 1995-97. There are large differences in ownership structure across countries, differences that seem to be determined by the method of privatization pursued. Enterprises in countries where the privatization programs favored incumbent managers (Georgia and Ukraine) ended with heavy ownership by managers (an average 53.6 percent and 46.2 percent, respectively). Countries that used mainly the mass privatization approach (Kazakstan and the Kyrgyz Republic) had the highest proportion of ownership shares held by outside investors (37 percent and 21.2 percent, respectively). Foreign ownership is positively associated with enterprise restructuring at high ownership levels (above 30 percent of shares). By contrast, the relationship between management ownership and enterprise restructuring is non-monotonic, positive at low (below 10 percent) or high (above 30 percent) levels. Finally, Djankov shows that ownership by outside local investors or the state is not significantly correlated with restructuring. This paper - a product of the Financial Economics Unit, Financial Sector PracticeDepartment - is part of a larger effort in the department to study the transition process