26 TABLE 4 OWNERSHIP EFFECTS FOR VARIOUS GROUPS OF OWNERS

|Largest shareholder of<br>apnvatized firnn|_REV_|State e<br>_EMPL_|nterpnses<br>_LBRPRD_|Gr<br>_COST_|owth of<br>_REV_|perform<br>Outsider<br>_EMPL_|ance measu<br>-owned fiCns<br>_LBRPRD_|re relativ<br> <br>_COST_|e to<br>_REV_|Employee<br>_EMPL_|-owned finns<br>_LBRPRD COST_|
|---|---|---|---|---|---|---|---|---|---|---|---|
|Outsiders (all)|+|+|+|+||||||||
|Insiders (all)||+||_|.|+|-|**+**||||
|_Employees_||_±_<br>_+_|_In_||___|+|___|||||
|_Managers_|**4-**|+||||**-t%**||**_+_**|**4***||_+_<br>x|

_Key_ ± + significantly faster growth; - significantly slower growth; 'no significant difference; / depending on the period over which the perfornance of state enterpnses is evaluated: * p = 0.11

# 5. PRE- AM) POST-PRIVATIZATION PERFORMANCE; SELECTION BIAS ANALYSIS

Eliminating the selection bias hypothesis -- that privatized firms perform better than state firms because they were simply better firms to begin with (and were perhaps privatized for this reason) -- is an important element of our argument that privatization leads in short order to dramatic improvements in performance. To evaluate the presence of selection bias, we test for the equivalence of the pre-privatization performance of sample firms; to verify the subsequent divergence of performance, we apply the same test to the post-privatization data. Both tests involve re-estimation of equation (1) for those firms only for which complete pre- and postprivatization data are available. This allows us to deterrnine whether the _same_ privatized firms that were outperforming state firms after privatization were also outperforming the _same_ state firms prior to privatization.<sup>7 0</sup> To verify that state and privatized firms were in a similar initial "shape," we assessed the excess of revenues over variable costs (labor and materials.) Within the limits of our data, a higher 70 The tests rely on a substantially smaller number of firms: in comparing the pre- and post-privatization performance of the same firms, we can use only finns privatized in 1991 and 1992 (since we had not asked for preprivatization data for firms privatized in 1990) and, among those, only firms that provided data on both pre- and postprivatization performance. The small number of such finns (10 finrs privatized in 1991 and 19 firms privatized in 1992) necessitates grouping of the two "vintages." This, in turn, creates a problem of choosing the demarcation line between the pre- and post-privatization periods for the entire group. In the event, we decided to use 1990-91 as the pre-privatization period and 1992-93 as the post-privatization period, with 1991-92 excluded from the equations. If anytiing, our choice tilts the results in favor of the selection bias hypothesis. Given the already observed quick impact of privatization, one would expect privatized firms to improve their performance somewhat in the year of privatization. Hence, including 1991 in the pre-privatization period for finns privatized in 1991 tends to inflate their pre-privatization performance. On the other hand, counting 1992 as a post-privatization year for firns privatized in 1992 tends to deflate the post-privatization performance, as it discounts the expected 1992 improvement of performance of these firms.