The choice of ownership structure: Evidence from Russian mass privatization

► The object of our study is the causality going from a firm's characteristics, including pre-privatization performance, to the likelihood of privatization and the firm's ownership structure. This important issue was neglected in some of the existing literature on the impact of privatization. Our approach contributes to address the problem of endogeneity of the ownership structure when its effect on firm performance is investigated. ► A part of the hypotheses for our empirical research is derived from the theoretical model on ownership change under conditions of insider ownership by Aghion and Blanchard. (On Privatization Methods in Eastern Europe and Their Implications. Economics of Transition, 1998.) To our knowledge, our paper is the first direct test of the predictions of this model. The quality and size of the data set are unique. We use a comprehensive data set of 530 Russian manufacturing firms that is representative of the whole industrial sector of the Russian economy. All information on ownership is available at two points in time: mid- 1994, right after the end of the mass privatization program, and at the beginning of 1999. The survey contains rich panel data on all the main characteristics of the firm. ► Our estimation methodology for the determinants of ownership stakes uses a two-limit tobit model with selection due to the privatization decision. That is a non-standard model and has not been applied in this context before. The model is able to account both for the peculiarity of the ownership variables and the sequence of stages in the privatization process.