Company Performance in Ukraine What Governs its Success

All opinions expressed here are those of the author and not those of the Economics Education and Research Consortium Research dissemination by the EERC may include views on policy, but the EERC itself takes no institutional policy positions 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 firm behavior. The author investigates how firm performance responds to these forces by modeling firm performance in Ukraine. Drawing from panel data on Ukrainian firms for 1996–2000, the study estimates a production function using random-effects and instrumental variable estimators. The analysis finds evidence that firm performance improves significantly with privatization. This effect is particularly strong when several private owners concentrate ownership. There is indication that privatized companies with dominant outside shareholders are most efficient. Another finding is that market competition has little role in determining firm performance in Ukraine. and Evgenyi Vilinsky for very helpful comments, and thanks Oleg P'yavka and Baoping Shang for help with data analysis.