Working Paper: CEPR ID: DP1273
Authors: Brian Pinto; Sweder van Wijnbergen
Abstract: We present evidence of major adjustment efforts in the State sector in Poland well before privatization. Extensive survey evidence is used both to establish this point and to find an answer to the question why managers instigated such reforms in spite of the absence of an effective ownership structure. We find both the government and, importantly, commercial banks, exercised strong governance: the government through its refusal to give open-ended subsidies and a tax-based wage policy, the effectiveness of which we establish using econometric techniques; and the banks through their discretion in allocating new funds. We also show that banks started to discipline their borrowers only after strong governance reforms for the banks themselves were instituted.
Keywords: privatization; state enterprises; corporate governance; corporate control; transition economies
JEL Codes: G32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Polish government refusing to provide open-ended subsidies (O38) | SOEs adjust and improve their performance (L25) |
| Implementation of tax-based wage policy (J38) | SOEs adjust and improve their performance (L25) |
| Reduction of subsidies (H23) | Elimination of incentives for SOEs to maintain inefficient practices (L33) |
| Elimination of incentives for SOEs to maintain inefficient practices (L33) | Promotion of better management and operational efficiency (M51) |
| Governance reforms within banks (G38) | Commercial banks discipline their borrowers (G21) |
| Excess wage tax (PPWW) (J38) | Control of wage increases (E64) |
| Expectations of future privatization (L33) | Enhancements in firms' performance by managers (L25) |