Privatization Incidence, Ownership Forms, and Firm Performance : Evidence from Slovenia

There is active debate in transition economies about the extent to which employee and foreign ownership ought to be encouraged or discouraged in privatization; but empirical evidence is scarce. This paper employs a unique data set on Slovene firms in an early period of "spontaneous privatization." Characteristics of the incidence of privatization to employee and foreign owners, and subsequent firm performance, are examined. The paper controls for simultaneity between privatization and firm performance, using a two-stage Tobit-least squares procedure. An elasticity of output with respect to ownership type is estimated. On the margin, a percentage point increase in foreign ownership is associated with about a 3.9% increase in value added; and for employee ownership with about a 1.4% increase; there is evidence of diminishing marginal productivity gains for both forms of ownership