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Harvard University. The author is grateful to Rachel Glennerster, Oleh Havrylyshyn, Jess Hobart, Simon Johnson, Dwight Perkins, Katharina Pistor, Edgardo Ruggiero, Jeff Sachs, and Janusz Szyrmer, the participants of the HIID seminar in Kiev and the staff of the IMF European II Department for valuable suggestions and comments.
Consider some examples of firm-level studies. For the Czech Republic, Hungary and Poland, Frydman, Hessel, Gray and Rapaczynski (1999) find that while privatization has no effect on profit margin in the short run, it does lead to improvement of revenue performance. For the Slovak Republic, Djankov and Pohl (1998) find that privatization is associated with greater productivity and profitability as well as a number of other indicators of restructuring. For a group of Central European countries, Pohl, Anderson, Claessens and Djankov (1997) find that privatization had a positive and significant impact on enterprise productivity. For Russia, Earle and Estrin (1997) find no significant differences between performance of state- and privately-owned enterprises. For small retail stores in Russia, Barberis, Boyko, Shleifer and Tsukanova (1996) find significant improvement in restructuring after privatization. For six CIS countries, Djankov (1999) finds that state ownership is associated with less restructuring, but the result is not statistically significant. For Mongolia, Anderson, Lee and Murrell (2000) find that state owned enterprises perform better than privatized firms do.
I follow Shleifer and Vishny (1997) definition of corporate governance, which deals with the ways in which suppliers of finance to firms assure that they will get a return on their investments.
Cumulative voting makes it easier for minority shareholders to gain representation on the board of directors by allowing shareholders to give all of their votes to one director instead of voting separately for each of the positions.
The EBRD index of extensiveness equals 1 if legal rules are very limited in scope, 2, if legal rules are limited in scope and may be the subject of conflicting interpretations, 3, if amended legislation has recently been enacted in at least two of the three areas (pledge, bankruptcy and company law), 4, if comprehensive legislation exists in at least two of three areas (pledge, bankruptcy and company law), 4+ if comprehensive legislation exists in all three areas and legal rules approach those of more developed countries. The index of effectiveness of legal rules equals 1 if commercial rules are usually very unclear and contradictory and law enforcement is rudimentary, 2, if commercial rules are generally unclear and sometimes contradictory and there are few meaningful procedures in place in order to make commercial laws operational and enforceable, 3 indicates that while commercial rules are reasonably clear, they are not fully enforced by the court system, 4 indicates that “commercial law is reasonably clear, and administration and judicial support of the law is reasonably adequate,” 4+, if commercial laws are clear and readily ascertainable.
The score is accompanied with the explanation: “Although its new constitution legally protects private property, Ukraine has not yet fully established a legal system that suff