Journal of International Business Studies

, Volume 39, Issue 4, pp 725–746 | Cite as

Restructuring of firms in transition: ownership, institutions and openness to trade

  • Polona Domadenik
  • Janez Prašnikar
  • Jan SvejnarEmail author


We develop a theoretical framework for defensive and strategic restructuring, and provide estimates of restructuring in privatized firms in an advanced transition economy: Slovenia. Our rich data point to both types of restructuring, as well credit rationing and bargaining with respect to investment. Privatized firms display profit-maximizing behavior, and a firm's export orientation and institutional features, such as insider vs outsider privatization, employee ownership, and employee control, do not affect the firm's employment and investment behavior. The results suggest that a major exposure to world competition induces similar economic behavior in firms with different structural and institutional characteristics.


transition R&D investment firms in transition employee ownership and control institutions openness 



Prašnikar's and Domadenik's research in this paper was in part supported by the Slovenian Research Agency's grant no. P5-0128, Behavior of Slovene Firms in Global Competition. Svejnar's research was in part supported by NSF grant no. SES 0111783. The authors are indebted to two referees and Bernard Yeung for useful comments, and to numerous Slovenian enterprises for providing them with the data used in this paper. The usual caveat applies.


  1. Abel, A. B., & Blanchard, O. 1986. The present value of profits and cyclical movements in investment. Econometrica, 54 (2): 249–273.CrossRefGoogle Scholar
  2. Aghion, P., Blanchard, O., & Carlin, W. 1997. The economics of enterprise restructuring in Eastern Europe. In J. Roemer (Ed.), Property relation, incentives and welfare: 271–318. London: Macmillan.CrossRefGoogle Scholar
  3. Ahn, S. C., & Schmidt, P. 1995. Efficient estimation of models for dynamic panel data. Journal of Econometrics, 68 (1): 1–28.CrossRefGoogle Scholar
  4. Almeida, H., & Campello, M. 2002. Financial constraints and investment cash flow sensitivities: New research directions. Accessed 19 November 2006.
  5. Anderson, T. W., & Hsiao, C. 1982. Formulation and estimation of dynamic models using panel data. Journal of Econometrics, 18 (1): 47–82.CrossRefGoogle Scholar
  6. Arellano, M. 1989. A note on the Anderson–Hsiao estimator for panel data. Economics Letters, 31 (4): 337–341.CrossRefGoogle Scholar
  7. Arellano, M., & Bond, S. R. 1991. Some tests of specification for panel data: Monte Carlo evidence and an application to employment equations. Review of Economic Studies, 58 (2): 277–297.CrossRefGoogle Scholar
  8. Arrow, K. 1962. Economic welfare and the allocation of resources for invention. In R. R. Nelson (Ed.), The rate and direction of incentive activity: Economic and social factors: 609–625. Princeton, NJ: Princeton University Press.Google Scholar
  9. Basu, S., Estrin, S., & Svejnar, J. 2005. Employment determination in enterprises under communism and in transition: Evidence from Central Europe. Industrial and Labor Relations Review, 58 (3): 351–369.CrossRefGoogle Scholar
  10. Batra, R. 1997. Marketing issues and challenges in transitional economies. Journal of International Marketing, 5 (4): 95–114.Google Scholar
  11. Bean, C. R. 1981. An econometric model of manufacturing investment in the UK. Economic Journal, 91 (361): 106–121.CrossRefGoogle Scholar
  12. Bevan, A., Estrin, S., & Schaffer, M. 1999. Determinants of enterprise performance during transition. CERT Discussion Paper 99/03, Herriot-Watt University, Edinburgh.Google Scholar
  13. Blanchard, O., & Aghion, P. 1996. On insider privatization. European Economic Review, 40 (3–5): 759–766.CrossRefGoogle Scholar
  14. Blundell, R. W., & Bond, S. R. 1998. Initial conditions and moment restrictions in dynamic panel data models. Journal of Econometrics, 87 (1): 115–143.CrossRefGoogle Scholar
  15. Bole, V. 1999. The conduct of monetary policy and banking soundness: A Slovenian episode. In M. Blejer and M. Škreb (Eds), Central banking, monetary policy and the implications for transition economies: 185–212. Boston: Kluwer Academic Publishers.CrossRefGoogle Scholar
  16. Bond, S., & Meghir, C. 1994. Dynamic investment models and the firm's financial policy. Review of Economic Studies, 61 (2): 197–222.CrossRefGoogle Scholar
  17. Bond, S., & Van Reenen, J. 2007. Microeconometric models of investment and employment. In J. J. Heckman and E. E. Learner (Eds), Handbook of econometrics, Vol. 6: 4417–4498. London: North Holland.Google Scholar
  18. Bond, S., Harhoff, D., & Van Reenen, J. 2003. Investment, R&D and financial constraints in Britain and Germany. CEP Discussion Papers dp0595, Centre for Economic Performance at London School of Economics and Political Science, London.Google Scholar
  19. Bond, S. R., Elston, J., Mairesse, J., & Mulkay, B. 1997. Financial factors and investment in Belgium, France, Germany and the UK: A comparison using company panel data. NBER Working Paper No. 5900, National Bureau of Economic Research, Cambridge MA.Google Scholar
  20. Bonin, J., Jones, D., & Putterman, L. 1993. Theoretical and empirical studies of producer cooperatives: Will ever the twain meet? Journal of Economic Literature, 31 (3): 1290–1320.Google Scholar
  21. Brada, J. C. 1996. Privatization is transition – Or is it? Journal of Economic Perspectives, 10 (2): 67–86.CrossRefGoogle Scholar
  22. Bresson, G., Kramarz, F., & Sevestre, P. 1992. Heterogeneous labor and the dynamics of aggregate labor demand: Some estimations using panel data. Empirical Economics, 17 (1): 153–168.CrossRefGoogle Scholar
  23. Cable, J., & FitzRoy, F. 1980. Productive efficiency, incentives and employee participation: Some preliminary results for West Germany. Kyklos, 33 (1): 100–121.CrossRefGoogle Scholar
  24. Carlin, W., Van Reenen, J., & Wolfe, T. 1994. Enterprise restructuring in early transition: The case study evidence from Central and Eastern Europe. Economics of Transition, 3 (4): 427–458.CrossRefGoogle Scholar
  25. Carlin, W., Fries, S., Schaffer, M., & Seabright, P. 2001. Competition and enterprise performance in transition economies: Evidence from a cross-country survey. CEPR Discussion Paper No. 2840, Centre for Economic Performance at London School of Economics and Political Science, London.Google Scholar
  26. Chandler, A. D. 1993. Organizational capabilities and industrial restructuring: A historical analysis. Journal of Comparative Economics, 17 (2): 309–337.CrossRefGoogle Scholar
  27. Clegg, S. 1983. Organizational democracy, power and participation. In C. Crouch and F. Heller (Eds), Organizational democracy and political processes: 3–34. New York: John Wiley & Sons.Google Scholar
  28. Crouch, C. 1983. Introduction to volume I. In C. Crouch and F. Heller (Eds), International yearbook of organizational democracy, vol. 1: 3–15. New York: John Wiley & Sons.Google Scholar
  29. Djankov, S., & Murrell, P. 2002. Enterprise restructuring in transition: A quantitative survey. Journal of Economic Literature, 40 (3): 739–792.CrossRefGoogle Scholar
  30. Estrin, S. 2002. Competition and corporate governance in transition. Journal of Economic Perspectives, 16 (1): 101–124.CrossRefGoogle Scholar
  31. Estrin, S., Hanousek, J., Kocenda, E., & Svejnar, J. 2007. Effects of privatization in transition economies. Mimeo, Ross School of Management, University of Michigan.Google Scholar
  32. Fazzari, S. M., Hubbard, G. R., Petersen, B., Blinder, A.S., & Poterba, J.M. 1988. Financing constraints and corporate investment. Brooking Papers on Economic Activity, 1988 (1): 141–206.CrossRefGoogle Scholar
  33. Frydman, R., Gray, C., Hessel, M., & Rapaczyinski, A. 1999. When does privatisation work? The impact of private ownership on corporate performance in the transition economies. Quarterly Journal of Economics, 114 (4): 1153–1191.CrossRefGoogle Scholar
  34. Furubotn, E., & Pejovich, S. 1970. Property rights and the behavior of the firm in a socialist state: The example of Yugoslavia. Zeitschhrift fur Nationalekonomie, 30 (3–4): 431–454.CrossRefGoogle Scholar
  35. Gregorič, A., Prašnikar, J., & Ribnikar, I. 2000. Corporate governance in transitional economies: The case of Slovenia. Economic and Business Review, 2 (3): 183–207.Google Scholar
  36. Griliches, Z. 1979. Issues in assessing the contribution of research and development to productivity growth. The Bell Journal of Economics, 10 (1): 92–116.CrossRefGoogle Scholar
  37. Griliches, Z. 1986. Productivity, R&D and basic research at the firm level in the 1970s. American Economic Review, 76 (1): 141–154.Google Scholar
  38. Griliches, Z., & Hausman, J. 1986. Errors in variables in panel data. Journal of Econometrics, 31 (1): 93–118.CrossRefGoogle Scholar
  39. Grosfeld, I., & Roland, G. 1997. Defensive and strategic restructuring in Central European enterprises. Journal of Transforming Economies and Societies, 3 (4): 21–46.Google Scholar
  40. Gupta, N., Ham, J., & Svejnar, J. 2007. Priorities and sequencing in privatization: Evidence from the Czech Republic. European Economic Review, doi: 10.1016/j.euroecorev.2007.05.004.Google Scholar
  41. Hahn, J., & Hausman, J. 2002. Notes on bias in estimators for simultaneous equation models. Economic Letters, 75 (2): 237–241.CrossRefGoogle Scholar
  42. Hall, B. 1992. Investment and R&D at the firm level: Does the source of financing matter? NBER Working Paper No. 4096, National Bureau of Economic Research, Cambridge, MA.Google Scholar
  43. Hamermesh, D. 1993. Labor demand. Princeton, NJ: Princeton University Press.Google Scholar
  44. Hansen, L.P. 1982. Large sample properties of generalized method of moments estimators. Econometrica, 50 (4): 1029–1054.CrossRefGoogle Scholar
  45. Hayakawa, K. 2005. Small sample bias properties of the system GMM estimator in dynamic panel data models. Accessed 19 November 2006.
  46. Himmelberg, C., & Petersen, B. 1994. R&D and internal finance: A panel study of small firms in high-tech industries. Review of Economics and Statistics, 76 (1): 38–51.CrossRefGoogle Scholar
  47. Hinds, M. 1990. Issues in the introduction of market forces in Eastern European socialist economics. In S. Commander (Ed.), Managing inflation in socialist economies in transition: 121–154. Washington, DC: World Bank.Google Scholar
  48. Kaplan, S., & Zingales, L. 1997. Do investment-cash flow sensitivities provide useful measures of financing constraints? The Quarterly Journal of Economics, 112 (1): 169–215.CrossRefGoogle Scholar
  49. Lizal, L., & Svejnar, J. 2002. Investment, credit rationing, and the soft budget constraint: Evidence from Czech panel data. Review of Economics and Statistics, 84 (2): 353–370.CrossRefGoogle Scholar
  50. Lizal, L., Singer, M., & Svejnar, J. 2001. Enterprise breakups and performance during the transition from plan to market. Review of Economics and Statistics, 83 (1): 92–99.CrossRefGoogle Scholar
  51. Mairesse, J. 1990. Time-series and cross-sectional estimates on panel data: Why are they different and why should they be equal?. In J. Hartog, G. Ridder and J. Theeuwes (Eds), Panel data and labor market studies: 81–95. Amsterdam: North-Holland Publishing Co.Google Scholar
  52. Mairesse, J., & Sassenou, M. 1991. R&D and productivity: A survey of econometric studies at the firm level. STI Review, 8 (April): 9–43.Google Scholar
  53. Megginson, W., & Netter, J. 2001. From state to market: A survey of empirical studies on privatization. Journal of Economic Literature, 39 (2): 321–389.CrossRefGoogle Scholar
  54. Meyendorff, A., & Thakor, A.V. 2002. Introduction: Financial systems in transition. In A. Meyendorff and A. V. Thakor (Eds), Designing financial systems in transition economies: Strategies for reform in Central and Eastern Europe: 1–5. Cambridge, MA: MIT Press.Google Scholar
  55. Milkovich, G., & Bloom, M. 1998. Rethinking international compensation. Compensation & Benefits Review, 30 (1): 15–24.CrossRefGoogle Scholar
  56. Milkovich, G., & Boudreau, J. 1997. Human resource management. Boston: Irwin McGraw-Hill.Google Scholar
  57. Nickell, S.J. 1984. An investigation of the determinants of manufacturing employment in the United Kingdom. Review of Economic Studies, 51 (4): 529–557.CrossRefGoogle Scholar
  58. Nickell, S.J. 1985. Error correction, partial adjustment and all that: An expository note. Oxford Bulletin of Economics and Statistics, 47 (2): 119–129.CrossRefGoogle Scholar
  59. Prašnikar, J., & Gregorič, A. 2002. The influence of workers' participation on the power of management in transitional countries: The case of Slovenia. Annals of Public and Cooperative Economics, 73 (2): 269–297.CrossRefGoogle Scholar
  60. Prašnikar, J., & Svejnar, J. 2007. Investment, wages and ownership during the transition to a market economy: Evidence from Slovenian firms. In S. Estrin, G. W. Kolodko and M. Uvalic (Eds), Transition and beyond: Essays in honor of Mario Nuti: 149–174. London: Palgrave Macmillan.CrossRefGoogle Scholar
  61. Prašnikar, J., Svejnar, J., Mihaljek, D., & Prašnikar, V. 1994. Behavior of participatory firms in Yugoslavia: Lessons for transforming economies. Review of Economics and Statistics, 76 (4): 728–740.CrossRefGoogle Scholar
  62. Prašnikar, J., Jazbec, B., Mrak, M., Domadenik, P., & Gregorič, A. 2002. Slovenia – Country study for GDN project. Accessed 19 November 2006.
  63. Preisner, A. 1996. Marketing – Controlling. Vienna: Oldenburg Verlag.Google Scholar
  64. Shirley, M., & Walsh, P. 2000. Public vs private ownership: The current state of the debate. Accessed 19 November 2006.
  65. Staiger, D., & Stock, J.H. 1997. Instrumental variables regression with weak instruments. Econometrica, 65 (3): 557–586.CrossRefGoogle Scholar
  66. Stiglitz, J. 1999. Whither reform? Ten years of transition. In B. Pleskovic and J.E. Stiglitz (Eds), Annual World Bank Conference on Economic Development: 127–171. Washington, DC: World Bank.Google Scholar
  67. Svejnar, J. 1982. Codetermination and productivity: Empirical evidence from the federal republic of Germany. In D. Jones and J. Svejnar (Eds), Participatory and self-managed firms evaluating economic performance. Lexington, MA: Lexington Press.Google Scholar
  68. Svejnar, J. 2002. Transition economies: Performance and challenges. Journal of Economic Perspectives, 16 (1): 3–28.CrossRefGoogle Scholar
  69. Vanek, J. 1970. The general theory of labor-managed market economies. Ithaca, NY: Cornell University Press.Google Scholar
  70. Windmeijer, F. 2006. GMM for panel count data models. CeMMAP Working Paper CWP21/06, Centre for Microdata Methods and Practice, Institute for Fiscal Studies.Google Scholar

Copyright information

© Academy of International Business 2008

Authors and Affiliations

  • Polona Domadenik
    • 1
  • Janez Prašnikar
    • 1
  • Jan Svejnar
    • 2
    Email author
  1. 1.Faculty of Economics and Institute for South-East Europe, University of LjubljanaSlovenia
  2. 2.Gerald R. Ford School of Public Policy, University of MichiganAnn ArborUSA

Personalised recommendations