DP1757 Enterprise Break-ups and Performance During the Transition

Author(s): Lubomír Lízal, Miroslav Singer, Jan Svejnar
Publication Date: December 1997
Keyword(s): Breakup, Czechoslovakia, Firms, Spin-off, Transition
JEL(s): D21, D24, L11, P11
Programme Areas: Transition Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=1757

This paper estimates the effects of the 1991 breakups of Czechoslovak state-owned enterprises (SOEs) on subsequent performance of the master enterprises and the spin-off units. The analysis is based on quarterly and annual data of Czechoslovak industrial enterprises. We estimate the performance effect of a spin-off by comparing the performance of enterprises that were present throughout the 1990?92 period, but did not experience any spin-offs, to that of: a) master enterprises that experienced spin-offs; and b) the new spin-off subsiduaries. The estimates suggest that the breakups had a significant immediate (1991) effect on productive efficiency and profitability of industrial firms. The effect was positive for small to slightly above-average size spin-offs and negative for large ones. The hypothesis that the estimated effect of spin-offs on performance was identical for the spin-off subsiduaries and the master enterprises that experienced the spin-offs cannot be rejected. The 1991 estimates thus strongly suggest that the large firms created under the centrally-planned system suffered from inefficiencies that were alleviated by the break-ups of these firms into smaller units.