DP2131 The Enterprise Isolation Programme in Romania

Author(s): Simeon Djankov
Publication Date: April 1999
Keyword(s): Financial Distress, Isolation Programme, Romania
JEL(s): G33, G34
Programme Areas: Transition Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=2131

We provide comprehensive analysis of the isolation program for financially distressed firms in Romania. The results indicate that the isolation program did not deliver any tangible improvements in operational performance, nor did it enhance the process of privatization or liquidation of large loss-making enterprises. Firms included in the program faced softer budget constraints than their comparators outside the program, and few management changes in poorly performing firms took place. These findings question the feasibility of creating successful programs for enterprise restructuring under government auspices.