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Choice of Ownership Structure and Firm Performance - Evidence from Estonia

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In this paper we use rich panel data for a representative sample of Estonian enterprises to analysediverse issues related to the determinants of ownership structures and ownership changes afterprivatisation. A key focus is to determine whether ownership changes are related to economicefficiency. While employee owned firms are found to be much more prone than other firms toswitch ownership categories, often "employee owned" firms remain "insider-owned" as ownershippasses from current employees to managers and former employees. Logit analyses of thedeterminants of ownership structures and ownership changes provides mixed support for severalhypotheses. As predicted: (i) wealth and resource constraints play a crucial role in thedetermination of ownership, with foreigners buying firms with the highest equity levels andinsiders buying firms with the lowest equity valuations; (ii) risk aversion explains subsequentownership changes, especially away from employee ownership; (iii) allocation of ownershipdepends on the pre-privatisation origin and location of the firm, and these factors also influencesubsequent ownership changes. Finally we compare our findings with those achieved by usingmore conventional approaches to analyze efficiency that use very similar data. Reassuringly theevidence presented in this paper is consistent with the view that efficiency considerations driveownership changes (while earlier analysis for Estonia and for many other transition economies hasidentified the impact of ownership on economic performance.) However, the findings in this paperalso establish that there are important influences besides economic efficiency that affect enterpriseownership and ownership changes.

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Derek C Jones, Panu Kalmi, Niels Mygind

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