Enterprise Restructuring in Bulgaria and Romania

Ref. no. 681-96

This project will document the degree of enterprise restructuring in Bulgaria and Romania and the relationships between enterprise restructuring and the banking systems, the macroeconomic environment, and enterprise surveillance (or isolation) programs. Three papers are planned, all comparative.

The first paper will look at the link between the (lack of) hard budget and the banking system on the one hand and the (lack of) enterprise restructuring on the other and ask whether there is a critical point at which a banking crisis occurs. The paper will be based on panel regression analysis over the entire population of firms, linking firm performance to bank lending and other measures of external financing. The analysis will draw on detailed annual enterprise-level data for 1992­96 covering the entire population of firms in Bulgaria and Romania.

The second paper will focus on the cost of delayed privatization. What are the direct and indirect costs (including spillover effects) of a lack of privatization? And what is the effect of preexisting sectoral characteristics on the entry of new firms? This paper will be based on a survey, developed for this project, of managers of state-owned, privatized, and new private firms. The paper will use the survey data to quantify the effects of delayed privatization and its determinants. Because of the qualitative nature of the variables, it will use a probit-type analysis.

The third paper will be an empirical assessment of the Bulgarian and Romanian surveillance programs for a subset of enterprises. The paper will use Wilcoxen rank tests and ANOVA econometrics to measure the impact of the surveillance programs. It will match each firm in a program with a firm that is similar (in size, initial profitability, and sector origin) and estimate the relative change in firm performance from 1992 to 1996. The analysis will rely on the enterprise-level data for 1992­96 and case studies and quarterly financial statements for the 71 enterprises in the Bulgarian surveillance program and the 147 enterprises in the Romanian program.

Responsibility: Europe and Central Asia, and Middle East and North Africa Technical Department, Private Sector Development and Finance Group--Simeon Djankov (sdjankov@worldbank.org) and Patrick Tardy; Europe and Central Asia, Country Department I, Office of the Director--Frank Lysy; East Asia and Pacific, Office of the Vice President--Stijn Claessens; and Private Sector Development Department, Private Sector Development and Privatization Group--Sudhee SenGupta. With Fabrizio Coricelli, University of Sienna, Italy; Enrico Perrotti, University of Amsterdam; Chonira Aturupane, Stanford University; and Kosali Ilayperuma, University of Maryland.

Completion date: June 1998.

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