In two former Soviet republics, restructuring was faster in privatized companies that were bought by their managers than it was in companies in which managers received significant ownership stakes for free. Managers' incentives to restructure decrease when they regard their newly acquired ownership as a windfall gain. Using enterprise survey data for 1995–97, Djankov studies and compares how different modes of privatizing to insiders affect enterprise restructuring in two former Soviet republics, Georgia and Moldova.
Restructuring in companies in which incumbent managers received significant ownership stakes for free was similar to that in companies that were still state-owned.
By contrast, restructuring was faster in companies bought by their managers.
Djankov interprets these results as suggesting that managers' incentives to restructure decrease when they regard their newly acquired ownership as a windfall gain.
This paper—a product of the Financial Economics Unit, Financial Sector Practice Department—is part of a larger effort in the department to study the restructuring process in transition economies. Copies of the paper are available free from the World Bank, 1818 H Street NW, Washington, DC 20433. Please contact Rose Vo, room MC10-627, telephone 202-473-3722, fax 202-522-2031, Internet address hvo1@worldbank.org. The author may be contacted at sdjankov@worldbank.org. (16 pages)
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