The survey addresses three questions:

1. Who owns Russian firms post-privatization – managers, workers, financial institutions or the state?
2. What factors influence the ownership structure, in particular have outsiders managed to buy the ‘best’, or the ‘worst’ firms?
3. Has privatization begun to affect corporate performance in Russia?

1. Estrin and Earle find that Russian privatization has been led predominantly by insider ownership – workers and managers, on average, own 66% of shares (46% workers; 20% managers).
2. Outsiders, taken together, only own around 19% of shares in privatized firms.
3. However institutional investors are trying to hold blocks of shares in particular companies, giving them more influence than would be implied by the above aggregate shares.
4. Approximately 40% of privatized firms have an outside blockholder with at least 10% of voting shares, in large part because each firm has only one such outside owner. In addition, only 10% of firms that have a 10% blockholder have more than one such blockholder.

• The authors’ econometric analysis suggests that the distribution of shares between insiders, outsiders and the state in different companies is far from random. They note that the choice of different privatization options is significant in determining ownership structure, with Option A reducing the probability of insider dominance and leased buyouts increasing it. The analysis supports the view that insiders may have chosen the better firms in the privatization process, leaving outsiders with weaker companies.
• The authors argue that there is a complex relationship between ownership and performance. They find that there is a positive correlation between insider ownership and performance. However, when the selection effects (the fact that insiders obtained better firms) are taken into account, they isolate clear evidence that outsider ownership improves company performance.

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John S Earle is based at the Stockholm Institute for Transition Economics.

Saul Estrin is Professor of Economics at London Business School and a Research Fellow in CEPR’s Transition Economics programme.

‘After Voucher Privatization: The Structure of Corporate Ownership in
Russian Manufacturing Industry’
John S Earle and Saul Estrin

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