Ownership transformation and firm performance in the successor states of the former Yugoslavia

Privatization became a major component of economic policy around the world since
the mid-1980s despite the conflicting theoretical arguments and empirical evidence
for this policy. The inconclusive evidence, apart from reflecting genuine differences
among countries and industries under investigation, is also the result of
methodological and empirical problems this literature is beset with. This provides the
motivation for this research project which intends to contribute to the literature by
addressing some of these problems and also by applying it to a particular set of
countries, the successor states of the former Yugoslavia, that have been either not
studied at all or not studied as a group despite the fact that they share the same history
and the same economic, political and social background which are distinct from other
transition economies. As with the established empirical literature in the field, the
research focuses on the impact of privatization on the performance of firms in the
broad context of the neoclassical theory and its extensions.
The thesis aims at investigating the impact of privatization on companies’
performance in Bosnia and Herzegovina, Croatia, Kosovo, Macedonia, Montenegro,
Serbia and Slovenia, independent countries that emerged from the disintegration of
the former Yugoslavia. In doing so, this thesis initially embarks on a critical review of
theoretical and empirical literature, identifying their theoretical predictions and
assessing their empirical validity, highlighting a variety of methodological problems
from which the previous studies have suffered. The empirical investigation of this
thesis uses Stochastic Frontier Analysis to estimate the efficiency of companies with
different ownership structures. It also addressed the issue of missing data by
employing a multiple imputation procedure. In addition, policy evaluation
econometrics using matched difference-in-difference estimators is employed for
estimating the causal relationship between ownership transformation and companies’
performance. Special attention is paid to addressing the issue of selection bias which
is the main challenge in evaluating the effect of privatization.
The empirical results suggest that privatization is associated with improvement in
companies’ performance in terms of technical efficiency and sales levels, while it is
associated with a significant drop in employment levels. Also, privatization is
associated with improvement in performance over time. The results suggest that there
is some heterogeneity across countries, industries and ownership types. In particular,
they show that the average efficiency scores of companies in the successor states vary
systematically across these countries with Slovenian companies being the most
efficient, followed by those in Croatia, Montenegro, Bosnia, Serbia and Macedonia i.e.,
in some order of institutional and economic development in the region.