Ownership Structure and the Operating Performanceof Hungarian Firms

This paper uses firm-level data on 162 large Hungarian enterprises to analyse the relationship betweenownership structure and corporate performance in 1998 and 1999. Cross-sectional regressions are runfor each of these years using the return on assets (ROA) as the measure of performance. Both after-taxprofits and operating profits are used to produce the ROA variable. The signs of the regressioncoefficients and their significance levels are consistent across the different measures of profit, and alsoacross the two years. The results of the regressions suggest that the presence of foreign ownership maypositively affect performance while the existence of continuing State ownership has the opposite effect.Neither of these relationships, however, is statistically significant. Two variables have a significantimpact on performance that is consistent across different constructions of the regression models: firmsize and capital intensity. The smaller firms in the sample outperform the larger firms, which suggeststhat the greater monitoring and agency costs likely to be incurred by larger firms negatively impacttheir performance. The more capital intensive a firm (measured by the log of total assets toemployees) the greater is its performance. This positive relationship suggests that high capital intensitymay impose a barrier to entry and strengthen the competitive position of companies within theirindustries. The export intensity of a company (exports to sales revenue) is also positively andsignificantly related to performance, which suggests that the discipline of competing in foreign marketshas a positive impact. However, the inclusion of an industry dummy variable to the regressionequations results in the export intensity variable losing its significance....