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Growth and growth obstacles in transition economies: Privatized versus de novo private firms

Juliet D'Souza, William L. Megginson, Barkat Ullah and Zuobao Wei

Journal of Corporate Finance, 2017, vol. 42, issue C, 422-438

Abstract: In this study, we employ the World Bank Enterprise Survey (WBES) data collected in 2002, 2005, and 2009 for 21499 firms from 27 Eastern European and Central Asian countries to examine firm-level growth constraints faced by privatized firms versus those faced by the originally (de novo) private firms. We find that the de novo firms experience significantly higher financial, corruption, and legal obstacles than the privatized firms. We further document that, even though faced with more obstacles in the business environment, the de novo firms outperform the privatized firms. One explanation is that the profit motive of the de novo firms is organic, whereas the profit motive of the privatized firms is acquired. The organic profit motive may be powerful enough for the de novo firms to overcome more difficulties in the business environment and excel. Our study is the first in the privatization literature to go beyond performance comparisons and examine firm-level growth constraints.

Keywords: Privatization; Firm performance; Growth obstacle; Transition economy; World Bank Enterprise Survey (search for similar items in EconPapers)
JEL-codes: G32 G38 L33 (search for similar items in EconPapers)
Date: 2017
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