28 TABLE 6 PRE- AND POST-PRIVATIZATION PERFORMANCE

|Prnvatized<br>finns<br>Privatized___________________f____|Performance cont<br>II<br>_____is____<br>prior toprivatization|rast with state finns<br>1<br>|<br>followingpnvatization|
|---|---|---|
|Revenue growth<br>with insider-owned**fuis**<br>without insider-owned firms|8.54**<br>6.56|**11.24***<br>**11.88***|
|Labor productivity growth|||
|with insider-owned finns<br>without insider-owned finns|2.87<br>0.64|9.66**<br>15.60*|

*p<0.05; **p<0.10

The results confirm our conjecture. When insider-owned firms are included, the pre-privatization performance difference with respect to state firms (the "pre-privatization effect"), slightly above 8.5%, is significant (if only at p=0.09.) Even then, though, not only is the pre-privatization regression devoid of any significant explanatory power, but the initial size effect, invariably significant in all post-privatization regression, lacks significance as well. In a marked contrast, the post-privatization regression explains a significant portion of the performance of sample firms, with both the privatization effect and the initial size component of the transition effect significantly different from zero.<sup>71</sup> When the insider-owned firms are excluded from the pre- and post-privatization performance comparisons, the "pre-privatization effect" drops to 6.56% and loses statistical significance while the post-privatization difference increases to nearly 12% and remains significant. Productivity performance strengthens the evidence provided by revenue contrasts. The preprivatization estimates fail to differentiate between privatized and state finns regardless of whether insider-owned firms are included or excluded, while the post-privatization results confirm a strong and significant performance improvement, with the performance contrast increasing from 2.87 to 9.66 when insider-owned firm are included and from 0.64 to 15.60 when they are excluded.

Thus, insider-owned firms (and employee-owned ones in particular) tend to dissipate any initial advantages they may have and do not perform significantly better than state companies after privatization. This suggests the presence of a _negative selection bias_ which handicaps the impact

**71** The estimates of the privatization effect over 1992-1993 period reported here are somewhat weaker than those reported previously. As between the two, the estimates based on longer time periods and more **finns** are more indicative of the true difference made by privatization. The role of the estimates of post-privatization performance in this section, however, is not to achieve precise measurements of long-term privatization effects, but to show that our equation is sufficiently sensitive to pick up even short-term perfornance differences among the smaller group of firms. What the significance of the privatization effect in the postprivatization period shows, therefore, is that the _absence_ of significant differences in **the** pre-privatization period is not a function of a weak explanatory power of our equation, but rather an indication that the performance of the two groups of firms prior to privatization is indeed not significantly different.