Equality, Participation, Transition: Essays in Honour of Branko Horvat

164 Privatization: Evidence from Estonia
variables in different ways and use econometric approaches that are
essentially cross-sectional (for example, Earle and Estrin, 1996).
By contrast, in this paper, new data from a large panel of Estonian
firms are used to investigate these issues. The use of a large panel for
one country enables us to progress beyond previous work on this topic –
for example, to generate estimates of the influence on economic performance
of levels of ownership, more reliable than is contained in
studies which pool small samples for different countries. In addition,
since in transition economies many firms may have similar ownership
structures at a particular time but may have very different transition
paths towards those current ownership configurations, it is arguably
important to examine the consequences of these ownership changes.
Hence in this paper, the impact on economic performance both of
changes in majority ownership as well as minority stakes for different
groups, are investigated. 3 Before presenting these findings however, in
the next section we consider the theory on the case for privatization,
and its preferred form.
10.2 Conceptual framework
The theoretical case for privatization rests on several arguments
(for example, Boycko et al., 1996) including an alleged need for
depoliticization and the view that it is only non-state forms of ownership
that will produce an environment conducive to nurturing financial
discipline in firms. While not everyone accepts these views and
there is also empirical evidence, both for China as well as for state and
non-privately-owned firms in former communist countries in transition
(for example, Pinto et al., 1993 for Poland; Bim et al., 1993 for
Russia), which suggests that the issue is not as clear cut as proponents
believe, in this section we accept the need for privatization and a large
private sector and instead discuss the arguments for the preferred form
of private ownership. 4
To consider these issues, the dominant approach in the corporate
governance literature classifies firms by ownership (see for example,
Schleifer and Vishny, 1997). For reasons including allegedly superior
solutions to agency problems, it is argued that ownership by outsiders
is to be preferred and that when insiders dominate, the most efficient
form of insider ownership is managerial (rather than worker) ownership
(for example, Boycko et al., 1996). However, there are several
reasons why these conclusions may not always be most appropriate for
transition economies.