This paper investigates a unique policy designed to maintain employment during the privatization of East German firms …: distorted employment decisions, increased productivity, and higher exit rates. Our empirical analysis, using a novel dataset and …% points higher annual productivity growth, and a 3.6% points higher probability of exit for firms with binding employment …

above average size, initial profitability and initial labor productivity. After controlling for this selection bias, we find … that foreign investment has a positive, but statistically insignificant, impact on TFP (Total Factor Productivity) growth …

Even though it is well documented that privatization leads to an improvement in the performance of state … because it does not consider the performance of control firms of similar pre-privatization situations, i.e. the performance of … following privatization. Matching sample firms (privatized) to control firms (SOEs), I document that privatized firms do not …

efficiency gains result from better incentives and productivity, rather than from wholesale firing of employees and profitability …