The Operating Performance of Newly Privatized Firms in Central European Transition Economies

This study examines the operating performance of privatized firms in three Central European Transition Economies between 1990 and 1998. Overall, we find no evidence of a significant improvement in operating performance for the first six years after privatization. Contrary to the increasing empirical evidence for non-transition economies, our privatized firms experience no improvement in profitability, capital investments, efficiency, and output, a significant drop in employment, as well as a significant increase in leverage. The most important determinants of the performance changes following privatization were country effects, timing of the privatization sales, industry classification, and state ownership after privatization. Our findings are consistent with the empirical evidence that the transition process proved to be more difficult than expected and that, although necessary, privatizations do not necessarily produce equal efficiency gains in transition economies (Megginson, 2005; Havrylyshyn and McGettigan, 1999)