We provide the first test of and find support for the Hoff and Stiglitz (2004a,b) model predicting under what conditions mass privatizations are accompanied by asset stripping. We also test and do not find support for the main prediction of the Campos and Giovannoni (2006) model. In addition to testing the theory, we tackle an important policy-oriented issue of why a large number of efficient firms disappeared during mass privatization in the booming economy of Montenegro. Econometrically, we present the first study to look at firms that disappeared during a mass privatization transition, improving upon prior studies that focused only on existing firms and ignored survival bias. Our analysis suggests that asset stripping and firm disappearance were present, and that asset stripping was a likely reason for the loss of efficient firms. We show that because more productive firms were liquidated, it is important to model survival bias in the selection of firms remaining in samples when estimating the effects of privatization or other ownership changes. We also show that one needs to distinguish between true start-ups and liquidated firms that re-appear as start-ups. In the absence of the rule of law, many firms that appear to have disappeared were in fact appropriated by managers and politically connected individuals.
In this paper, we present and test a theory of how political connectedness (often linked to political corruption) affects corporate governance and productive efficiency of firms. Our model predicts that underdeveloped democratic institutions that do not punish political corruption result in political connectedness of firms that in turn has a negative effect on performance. We test this prediction on an almost complete population of Slovenian joint-stock companies with 100 or more employees. Using the data on supervisory board structure, together with balance sheet and income statement data for 2000–2010, we show that a higher share of politically connected supervisory board members leads to lower productivity.
Our paper focuses on examining the relationship between productivity (or productivity growth) and state aid allocation in Slovenia in the period of 1998-2012. The country itself represents almost an ideal case as the amount of subsidies being allocated in the studied period decreased significantly after joining EU. As EU member states, in principle, are not allowed to provide state aids as it could distort competition by favoring certain undertakings or the production of certain goods, state aid in Slovenia dropped from 2.53 percent of GDP in 1998 to 1.58 percent in 2003 and mere 0.87 percent in 2008. Our study builds on the theoretical model of Aghion et al. (2015) arguing that sectorial policy can enhance growth and efficiency if it made competition-friendly. The main results show, that by increasing dispersion of subsidies with particular industries by one standard deviation, the productivity growth increases by 0.03 percentage points on average, ceteris paribus. The state aid has been especially important in the period of economic downturn (2009-2012). However we found evidence that firms receiving higher portion of subsidies were less productive if compared with counterparts from the same industry receiving less or no subsidies.