| The objective of this paper is to study the effects of the privatization process in Bulgaria. A two-period utility maximization model is developed to describe the behavior of the companies in a transition economy, and the results are tested on a population of more than 1500 Bulgarian companies, using logit, probit, Tobit, and fixed and random effects models. We measure the performance of the newly privatized companies and compare those with the performance of the remaining state-owned enterprises (SOEs). In addition to comparing the results of the privatized versus state-owned firms, we compare the results of the different types of private investors in an attempt to determine any difference in the performance of the companies privatized by different groups of investors, namely Bulgarian private companies, foreign investors, Bulgarian privatization funds, Labor-Management Buyouts (LMBOs), and small-scale individual investors. The utility maximization model is developed to study the condition of the SOEs prior to privatization, and is used as the basis for our analysis of the performance of the new private owners after the privatization. The empirical results largely confirm our expectations that privatization was beneficial for the privatized companies, and more generally—for the economy. We document an increase in the levels of sales, rationalization in the business practices, managerial changes, optimization of labor force, and an increase in productivity. The most efficient investors proved to be the foreign owners, who were able to increase the sales and productivity, and attract long-term financing. Bulgarian private investors and the privatization funds failed to raise sufficient amounts of fresh financing, but did well in restructuring of the existing resources, although the Bulgarian private investors were not very successful in improving productivity. The performance of the companies with a dispersed ownership of individual investors was a surprise they demonstrated patterns of behavior similar to the ones owned by privatization funds. The companies privatized by LMBOs showed no significant difference from the control group of SOEs, indicating an insignificant effect from the privatization to labor-management buy-outs. |
