The Choice of Ownership Structure : Evidence from Russian Mass Privatization

In a comprehensive data set of 530 Russian manufacturing firms we observe high and gradually decreasing ownership stakes of firm insiders, i.e. managers and workers. We estimate the determinants of the decision to privatize a firm in the mass privatization program (1992-94) and of the resulting initial ownership distribution. For estimating the latter we use a tobit model with sample selection. The paper presents empirical tests for predictions of the model of ownership choice in insider privatization by Aghion and Blanchard (1998). In particular, we find that collusion among workers is important in their decision to sell shares to outsiders and raises their stake. Also, firms in financial distress show a higher incidence of insiders selecting the option of privatization leading to high insider ownership. This can be explained by the desire of insiders to insure against unemployment by acquiring more shares in those companies. No evidence is found of a sequencing in privatization according to the performance of firms before privatization