COMPANY PERFORMANCE IN UKRAINE: WHAT GOVERNS ITS SUCCESS

Tatiana ANDREYEVA (The RAND Graduate School of Policy Analysis)

The observable outcomes of post-Soviet economic reforms have generated large interest and controversy in the transition debate. Privatization and market competition are the two primary forces to induce changes in the behavior of firms. This study investigates how firm performance responds to these forces. It does so by modeling firm performance, correcting for selection bias in the privatization process. Drawing from panel data on Ukrainian firms for the period 1996-2000, the study estimates a production function using random-effects and instrumental variable estimators. The study presents evidence that firm performance improves with privatization. This effect is particularly strong when several private owners concentrate ownership. There is some indication that privatized companies with significant outside shareholders are most efficient. Another finding is that market competition has little role in determining firm performance in Ukraine.