The paper evaluates the effects of privatization in the post-communist economies and China. In post-communist economies privatization to foreign owners results in a rapid improvement in performance of firms, while performance effects of privatization to domestic owners are less impressive and vary across regions, coinciding with differences in policies and institutional development. In China relatively more estimates suggest that privatization to domestic owners improves the level of performance. Concentrated private ownership has a stronger positive effect on performance than dispersed ownership in the post-communist economies, but foreign joint ventures rather than wholly owned foreign firms have a positive effect in China. Worker or collective ownership does not have a negative effect. In the post-communist economies new firms are equally or more efficient than firms privatized to domestic owners, and foreign start-ups are more efficient than domestic ones. Privatization is not associated with lower employment. When accompanied by complementary reforms, privatization has a positive effect on economic growth. Three factors appear to drive the more positive effect of privatization to foreign than domestic owners. Domestic managers have more limited skills and access to world markets, domestically privatized firms have been more subject to tunneling and in some countries new large shareholders artificially decreased performance. The important policy implication is that privatization per se does not guarantee improved performance, at least not in the short- to medium-run. Type of private ownership, corporate governance, access to know-how and markets, and the legal and institutional system matter for firm performance.

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Effects of Privatization and Ownership in Transition Economies

1. INTRODUCTION Corporate governance is generally considered to be the set of complementary mechanisms that help align the actions and choices of managers with the interests of shareholders. Monitoring actions by the board of directors, debtholders, or institutional blockholders can have an important impact on the economic performance of an organization (for example, Jensen [1989], Mehran [1995], Core, Holthausen, and Larcker [1999], and Holderness [2003]). Another important and often debated component of the governance structure is the compensation contract selected for providing remuneration to managers (for example, the level of remuneration or choice of performance measures). Executive compensation has been the subject of extensive prior research, and excellent general reviews already exist for the interested reader (for example, Murphy [1999]). For our purposes here, we will not reproduce this discussion but rather focus on the more narrow, but crucial, topic of stock-based compensation and incentives. Stock and option compensation and the level of managerial equity incentives are aspects of corporate governance that are especially controversial to shareholders, institutional activists, and governmental regulators. Similar to much of the corporate finance and corporate governance literature, research on stock-based compensation and incentives has generated not only useful insights, but also has produced many contradictory findings. Not surprisingly, many fundamental questions remain unanswered, and one of our goals is to highlight topics that seem especially appropriate for future research. Within the corporate governance literature, and more specifically within the executive compensation literature, there are alternative views on the efficiency of observed contracting arrangements between firms and their executives. For the purposes of this survey and as an organizing principle of our literature review, we follow a traditional agency-theory framework and define an efficient contract as one that maximizes the net expected economic value to shareholders after transaction costs (such as contracting costs) and payments to employees. An equivalent way of saying this is that we assume that contracts minimize agency costs. Clearly, the types of contracts that are efficient at any particular time or in a particular sector of the economy are a function of various transaction costs. For instance, a contract that was efficient in the United States fifty years ago may not be efficient today because information costs have fallen greatly and the optimal organizational form has changed as a result. Over time, optimal contracting arrangements evolve with changes in contracting technology. As part of this evolutionary process, firms are experimenting with new contracting technologies. Some experiments succeed and others fail as firms update their beliefs and learn about the efficiency of their governance structures. Throughout this process, firms may be uncertain about the optimal contracting technology. As a result of this uncertainty and because of differences in beliefs about optimal incentive levels, one would expect variation in the observed contracts across firms. However, unless beliefs are systematically biased, we expect that compensation contracts are efficient, on average, and that average equity incentive levels across firms are neither "too high" nor "too low." (For an example and discussion of how an evolutionary process converges to an efficient outcome, see Lazear [1995, pp. 8-10].) In contrast to this economic perspective, a number of scholars and practitioners either implicitly or explicitly take the view that contracting arrangements are largely inefficient and do not minimize agency costs (for example, Morck, Shleifer, and Vishny [1988], Crystal [1991], and Jensen [1993]). A view that sees most firms behaving inefficiently is hard to support. At the opposite extreme is the view that transaction costs in the labor market, the stock market, and the market for corporate control are so small that all agency costs are eliminated. …

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Executive Equity Compensation and Incentives: A Survey

In this paper, we evaluate what we have learned to date about the effects of privatization from the experiences during the last fifteen to twenty years in the postcommunist (transition) economies and, where relevant, China. We distinguish separately the impact of privatization on efficiency, profitability, revenues, and other indicators and distinguish between studies on the basis of their econometric methodology in order to focus attention on more credible results. The effect of privatization is mostly positive in Central Europe, but quantitatively smaller than that to foreign owners and greater in the later than earlier transition period. In the Commonwealth of Independent States, privatization to foreign owners yields a positive or insignificant effect while privatization to domestic owners generates a negative or insignificant effect. The available papers on China find diverse results, with the effect of nonstate ownership on total factor productivity being mostly positive but sometimes insignificant or negative.

Federico Sturzenegger and

The paper examines the determinants and performance consequences of equity grants to senior-level executives, lower-level managers, and non-exempt employees of "new economy" firms. We find that many of the equity grant determinants and their relative importance vary significantly between new and old economy firms. In addition, we find that employee retention objectives, which new economy firms rank as the most important goal of their equity grant programs, have a significant impact on new hire grants, but not on annual, ongoing grants. Our exploratory performance tests indicate that lower than expected option grants and/or existing option holdings are associated with lower accounting and stock price performance in subsequent years. However, we find that greater than expected option and equity grants and holdings have little consistent association with future performance.

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The Structure and Performance Consequences of Equity Grants to Employees of New Economy Firms

PART I: HISTORY AND THEORY OF THE MULTINATIONAL ENTERPRISE PART II: THE POLITICAL AND REGULATORY ENVIRONMENT PART III: STRATEGY AND INTERNATIONAL MANAGEMENT PART IV: MANAGING THE MNE PART V: AREA STUDIES PART VI: METHODOLOGICAL ISSUES

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The Oxford Handbook of International Business

Kremlin Capitalism: Privatizing the Russian Economy

This paper compares the performance of 229 `New Economy' firms offering broad-based stock options to that of their non-stock option counterparts . A simple comparison of these firms reveals that the former have higher shareholder returns, Tobin's q and new knowledge generation . Multivariate analysis using panel data also suggests that the adoption of a stock option plan results in higher levels of value added per employee . However, we do not find evidence that these plans result in superior growth in Tobin's q or new knowledge generation .

Broad‐based Employee Stock Options in US ‘New Economy’ Firms

Kremlin capitalism : the privatization of the Russian economy

In June 1996, for the first time in thousand years, Russian citizens were given the chance to select their head of state in a democratic election. Michael McFaul analyzes three major factors that combine to explain why Boris Yeltsin's victory, should have been expected, discusses the reasons behind Yeltsin's victory, and examines its impact on electoral politics in post-Soviet Russia.

Bringing the Russian State Back in: Explanations of the Derailed Transition to Market Democracy@@@Kremlin Capitalism: Privatizing the Russian Economy@@@Democracy from Scratch@@@Problems of Democratic Transition and Consolidation@@@Russia's 1996 Presidential Election: The End of Polarized Politics

We use empirical analysis to analyze company characteristics associated with the adoption and maintenance of broad-based stock option plans First, a cross-sectional analysis evaluates what company characteristics are now associated the incidence of such plans Second, a longitudinal analysis examines the company characteristics that predict the adoption of such plans Our results show that firms with higher levels of intellectual capital and capital intensity are more likely to adopt and maintain employee stock option plans

Maya K. Kroumova

Papers

Kremlin Capitalism: Privatizing the Russian Economy

Broad‐based Employee Stock Options in US ‘New Economy’ Firms

Kremlin capitalism : the privatization of the Russian economy

Bringing the Russian State Back in: Explanations of the Derailed Transition to Market Democracy@@@Kremlin Capitalism: Privatizing the Russian Economy@@@Democracy from Scratch@@@Problems of Democratic Transition and Consolidation@@@Russia's 1996 Presidential Election: The End of Polarized Politics

Intellectual Capital, Monitoring, and Risk: What Predicts the Adoption of Employee Stock Options?