impact on future efficiency is unclear as some of these workers may also have been the more productive, experienced or better trained.

Unlike the previous literature, which focused on the effects of restructuring on prices for the case of Mexico (L6pez-de-Silanes 1997), the nature of our data allows us to look at two complementary slices of the picture before and after privatization across countries. We are able to analyze the impact of a large set of labor policies before privatization, and observe the private firms' reaction in terms of rehiring of the previously fired workers. Our analysis uses these two types of results to provide an evaluation of the price effect of labor restructuring policies and the managerial quality of the downsizing efforts carried out by the governrment before privatization.

The database was constructed by randomly selecting 400 firms privatized between 1982-2000 around the world. We obtained pre- and post-privatization data by sending a detailed questionnaire to the CEO of the privatized firm and accessing privatization files. We followed up with each of the firms and corroborated their answers with several public sources and data for these firms coming from international financial agencies and privatization ministries. The result is a comprehensive cross-country (see Appendix I for a list of countries) database with firm characteristics, detailed labor restructuring policies before privatization, and labor rehiring policies after the firm entered the private sphere.' The basic thrust of our results is that adverse selection plagues retrenchment programs carried out by governments before privatization. Controlling for endogeneity, 2 labor downsizing does not do much in terms of net privatization prices. This finding may appear somewhat counterintuitive, as, according to the conventional wisdom, sellers will always want the government to downsize prior to privatization. However, this is fairly consistent with the political view on prior restructuring before privatization (L6pez-deSilanes 1997). Results also show that after controlling for endogeneity, pay cuts do not increase prices while employment guarantee programs forced on the buyer do carry a significant discount in prices.

To further study the results in the area of downsizing, we focus on the nature of the retrenchment process prior to privatization and its impact on rehiring. Confirming the adverse selection argument, several kinds of voluntary downsizing lead to a higher frequency of rehiring of the same workers by the new private owners.

The only exception is compulsory skill-biased programs as they are marginally associated with higher prices and lower rehiring rates after privatization in some

1. An additional benefit of this data is that it allows us to consider the issue of failed privatizations on prices, rarely treated in the literature. Research on privatization imnplicitly sets aside failed privatizations since data is typically available only for companies that actually attract bidders. This potentially underestimates the imnpact of labor changes for these companies, which are likely the ones that went through more thorough restructuring efforts prior to privatization. Methodologically, this issue is addressed by using a simple non-linear procedure for the entire, truncated, distribution of privatization prices.

2. As defined by the amount that accrues to the government after all costs are taken into account, adjusted by shares sold and divided by average sales during the three years prior to privatization.

2