CASE Network Report 46 - Secondary Privatization in Slovenia: Evolution of Ownership Structure and Company Performance Following Mass Privatization

M a r k o S i m o n e t i , A n d r e j a B ö h m ,
M a r k o Re m s , M a t i j a Ro j e c ,
J o e P. D a m i j a n , B o r i s M a j c e n
Secondary Privatization in Slovenia:
Evolution of Ownership Structure
and Company Performance Following
Mass Privatization
W a r s a w , 22 0 0 1
No . 44 6

This research was undertaken with support from
the European Union's Phare ACE Programme 1997,
project P97-8201R „Secondary Privatization: The Evolution
of Ownership Structure of Privatized Companies“,
co-ordinated by Professor Barbara B³aszczyk,
CASE Foundation, Warsaw. The content of the publication
is the sole responsibility of the authors and it in no way
represenets the views of the Commission or its services.
Key words: privatization, secondary transactions,
corporate governance, transition economies,
Czech Republic, Slovenia, Poland.
DTP: CeDeWu Sp. z o.o.
Graphic Design – Agnieszka Natalia Bury
Editing – Julia Iwiñska, Richard Woodward
Warsaw 2001
All rights reserved. No part of this publication may be
reproduced, stored in a retrieval system, or transmitted in any
form or by any means, without prior permission in writing
from the European Commission.
ISSN 1506-1647 ISBN 83-7178-276-4
Publisher:
CASE – Center for Social and Economic Research
ul. Sienkiewicza 12, 00-944 Warsaw, Poland
e-mail: case@case.com.pl
http://www.case.com.pl

3
Secondary Privatization in Slovenia ...
Contents
Preface . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Part I. Slovenia Mass Privatization and Barriers to Secondary Privatization
– Marko Simoneti and Andreja Böhm . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
1.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .7
1.2. Review of the Empirical Evidence on Mass Privatization in Slovenia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
1.3. Legal, Institutional, Structural and Political Barriers to Secondary Privatization . . . . . . . . . . . . . . . . . . . . . .10
1.3.1. Postponed Transferability of Privatization Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
1.3.2. Trading with Privatization Shares on the Stock Exchange . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
1.3.3. Market for Corporate Control . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
1.3.4. Disclosure of Information on Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
1.3.5. Supervisory Boards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
1.3.6. Financing of Companies and Secondary Privatization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
1.3.7. Employee Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
1.3.8. Transformation of Privatization Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .16
1.3.9. Residual State Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
1.3.10. Strategic Investors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
1.3.11. Political Economy of Privatization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
1.4. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .20
Part II. Secondary Privatization in Slovenia: Evolution in Ownership Structure and Concentration
after Mass Privatization – Marko Simoneti, Andreja Böhm, Marko Rems and Matija Rojec . . . . . . . . . . .21
2.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
2.1.1. Exit of Transitional Owners and Concentration of Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
2.1.2. Entry of Strategic Owners . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
2.1.3. Conflicts of Interests between Internal Owners and Funds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .21
2.2. The Outcomes of Primary (Mass) Privatization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .22
2.2.1. The Ownership Structure and Concentration at the Time of Completion of Privatization . . . . . . .22
2.3. Secondary Privatization: Changes in Ownership Concentration after Ptivatization . . . . . . . . . . . . . . . . . . .25
2.4. Secondary Privatization: Changes in Ownership Structure after Ptivatization . . . . . . . . . . . . . . . . . . . . . . .26
2.5. Post-privatization Trasformation Matrix of Companies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .30
2.6. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31
CASE Reports No. 46

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M.Simoneti, A.Bohm, M.Rems, M. Rojec, J.P. Damijan, B. Majcen
Part III. Secondary Privatization in Slovenia: Company Performance and Ownership Changes after
Mass Privatization (1995–99) – Marko Simoneti, Joe P. Damijan, Boris Majcen and Matija Rojec . . . . . .33
3.1. Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
3.2. Methodology and Data . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
3.3. Aggregate Analysis and Main Hypotheses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
3.3.1. The Privatization Model Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
3.3.2. The Owner Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
3.3.3. The Agent/Seller Effect (Secondary Privatization) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
3.4. Empirical Testing of Hypotheses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .36
3.4.1. Selection Bias Problem . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .37
3.4.2. Economic Efficiency . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .38
3.4.3. Financial Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
3.5. Conclusions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
CASE Reports No. 46

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Marko Simoneti
Marko Simoneti is professor of finance at the University of Ljubljana, Slovenia, and he serves as the Executive Director of
the Central and Eastern European Privatization Network - the international organization founded in 1991 by Central and
Eastern European countries to support economic transition in the region. He has lectured and published extensively on
financial reforms, restructuring of enterprises and, above all, on privatization issues in transitional economies. He received
his Ph.D. in economics from Cornell University, USA, in 1988.
Andreja Böhm
Andreja Böhm is a member of the Central and Eastern European Privatization Network research team. In 1985 she
received an MA degree in Development Studies at the University of Leeds, United Kingdom. She holds degrees in eco-nomics
and sociology from the University of Ljubljana, Slovenia. Since 1999 she has worked as government advisor at the
Ministry of Finance in Slovenia, on issues of capital market development and, more recently, private investments in infra-structure.
Currently her main research interests are privatisation, post-privatisation ownership changes and corporate gov-ernance,
and cooperation of public and private sectors in infrastructure investments.
Marko Rems
Marko Rems has collaborated with the Central and Eastern European Privatization Network on consulting and research
projects since 1997. He is currently preparing his M.A. Degree at the University of Ljubljana. He has participated in numer-ous
research projects focusing mainly on privatization of Slovenia enterprises, corporate governance and especially on the
inter-dependence of ownership structure and performance of enterprises.
Matija Rojec
Matija Rojec has a Ph.D. in economics and is Senior Research Fellow at the Center for International Relations of Faculty of
Social Sciences, Adviser to the Government at the Institute of Macroeconomic Analysis and Development of the Republic
of Slovenia and Assistant Professor at Faculty of Social Sciences, University of Ljubljana. One of his main areas of profes-sional
interest is the question of foreign direct investment.
Joe P. Damijan
JoJe P. Damijan has been working at the Institute for Economic Research since 1998 (part time) and at the Faculty of Eco-nomics
as an assistant professor since 2000. He graduated at the Faculty of Economics, University of Ljubljana and received
his Ph.D. in economics at the same faculty (1998). His main research interests are in the areas of international trade and
foreign direct investment, regional analysis and policy, enterprise restructuring and privatisation, structural analysis of the
manufacturing industry and restructuring of the Slovenian economy in the processes of EU accession and transition, and
cost-benefit analysis of Slovenian accession to the EU.
Boris Majcen
Boris Majcen has been working at the Institute for Economic Research since 1979 and is currently head of the Internation-al
Economics Department. He received his PhD in economics from the Faculty of Economics, University of Ljubljana in
1999. His main research interests are in the areas of agriculture, international trade and foreign direct investment, enter-prise
restructuring and privatisation, structural analysis of the manufacturing industry and restructuring of the Slovenian
economy in the processes of EU accession and transition, and cost-benefit analysis of Slovenian accession to the EU.
CASE Reports No. 46

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CASE Reports No. 46
This volume contains the output of country research
undertaken in Slovenia in 2000–2001 by a team directed by
Andreja Bohm and Marko Simoneti under the international
comparative project Secondary Privatization: the Evolution
of Ownership Structures of Privatized Enterprises. The
project was supported by the European Union's Phare ACE*
Programme 1997 (project P97-8201 R) and was coordinat-ed
by Barbara B³aszczyk from the Center for Social and Eco-nomic
Research (CASE) in Warsaw, Poland. The Slovenian
research was additionally co-financed by the research grant
received by Central and Eastern European Privatization
Network from the Ministry of Science and Technology,
Republic of Slovenia (V5-9140-98).
The support of the ACE Programme made it possible to
organize the cooperation of an international group of scho-lars
(from the Czech Republic, France, Poland, Slovenia and
the U.K.).
The entire project was devoted to the investigation of
secondary ownership changes in enterprises privatized in
special privatization schemes (i.e., mass privatization
schemes and MEBOs**) in three Central European countries
– the Czech Republic, Poland and Slovenia . Through a com-bination
of different research methods, such as secondary
analysis of previous research, analysis of legal and other re-gulatory
instruments, original field research, statistical data
base research and econometric analysis of individual enter-prise
data, the project aimed to investigate the scope, pace
and trends in secondary ownership changes, the factors and
barriers affecting them and the degree of ownership con-centration
resulting from them.
In presenting a clear picture of secondary privatization
trends in Slovenia, the authors of this volume tried to eva-luate
the effectiveness of various privatization schemes in
terms of their open-endedness (i.e., the degree to which
they foster flexibility in adjustments of ownership struc-tures)
and in terms of achieving good corporate governance.
Additionally, they formulate and examine hypotheses con-cerning
the relationships between changes in the economic
performance of enterprises and post-privatization changes
in their ownership structures.
This report also includes a set of recommendations con-cerning
necessary changes in the regulations and policies
governing privatization and capital markets in Slovenia,
designed to foster the development of privatized enterpri-ses
and to meet the requirements of the process of acces-sion
to the European Union.
We hope that the results of this research will be of great
interest for everyone interested in the little-researched
question of what has happened to companies after privati-zation
in transition countries.
Barbara B³aszczyk
Preface
* Action for Cooperation in the Field of Economics.
** Management-Employee Buyouts.

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Part I.
Slovenia Mass Privatization and Barriers
to Secondary Privatization1
Marko Simoneti and Andreja Böhm2
1.1. Introduction
After prolonged debates on the most adequate method
for privatizing companies in Slovenia, a combined model
was adopted, which in principle allowed for paid and non-equivalent
(i.e. mass) privatization. The basic model of pri-vatization
(20% + 20% +20% + 40%) according to the
Ownership Transformation Act (OTA) envisaged:
(1) transfer of 20 percent of shares to para-state funds: 10
percent to the pension fund and 10 percent to the
restitution fund;
(2) transfer of 20 percent of shares to privately managed
privatization funds in exchange for ownership certifi-cates
collected by them from citizens;
(3) exchange of 20 percent of shares at favorable terms
for ownership certificates of internal owners (man-agers,
current and former employees);
(4) optional use of 40 percent of shares:
(4i) for buy-outs at favorable terms by internal owners,
(4ii) in exchange for ownership certificates of citizens
in public offerings,
(4iii) in exchange for ownership certificates collected
by privatization funds or
(4iv) for purchases by strategic owners.
The fourth component contained optional elements,
and could therefore lead to the emergence of various own-ership
structures, reflecting (in principle) the needs of indi-vidual
companies. The legal principle of autonomy, by which
managers and employees in companies were granted the
right to prepare privatization plans, was a factor that criti-cally
determined the selection of privatization options.
The first characteristic of that selection was that com-panies
practically did not opt for sales of shares to strategic
CASE Reports No. 46
owners (4iv). Of approx. 1,500 companies privatized under
the OTA, only a few dozen acquired strategic owners. Thus
primary privatization was a lost opportunity for numerous
troubled companies requiring strategic investors for
restructuring. Such companies are therefore forced to
search for strategic investors that are capable and motivat-ed
to ensure restructuring in the next step, via secondary
transactions with privatization shares (i.e. secondary priva-tization).
Owners from mass privatization are largely transi-tional
owners, playing a role of privatization agents in search
of strategic investors.
The second characteristic of the selection of privatiza-tion
options was that managers and employees in general
exercised their priority buyout right to 40 percent of
shares at favorable terms (4i) to the maximum extent
allowed by their financial resources. Residual shares were
either exchanged for certificates collected by privatization
funds (4ii) or directly distributed to the citizens in public
offerings (4ii). Thus, apart from privatization to insiders
(i.e. internal privatization) and privatization to funds (i.e.
external privatization), privatization to the citizens (i.e.
public privatization) gained significance in large and capital
intensive companies. The selection between external and
public privatization was made on the basis of judgements as
to which of the two options represented a lesser threat to
internal owners. However, we must also take into account
the fact that public offerings to the citizens could have not
been successful in poorly performing companies, whereas
privatization funds were forced to accept the shares of
such companies.
In consequence, three typical groups of companies were
formed according to the relative importance of the three
forms of privatization and in view of the statutory rules that
applied at the commencement of secondary privatization:
(a) public companies quoted on the stock exchange as the
1 This research was undertaken with support from the European Union's Phare ACE Program 1997, Project P97-8201 R Secondary Privatization:
The Evolution of Ownership structure of Privatized Companies, coordinated by Professor Barbara B³aszczyk, CASE Foundation, Warsaw. The con-tent
of the publication is the sole responsibility of the authors and it in no way represents the views of the Commission or its services. In addition the
Slovenian research was supported by the research grant received by CEEPN from the Ministry of Science and Technology, Republic of Slovenia (V5-
9140-98).
2 Marko Simoneti is from CEEPN and the Law Faculty, University of Ljubljana, Andreja Böhm is from CEEPN and the Ministry of Finance of Slove-nia.
(CEEPN address: Dunajska 104, 1000 Ljubljana, Slovenia, phone: + 386 1 568 33 96; fax: + 386 1 534 66 60, e-mail: ceepn@siol.net).

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CASE Reports No. 46
result of combined internal, external and public privatiza-tion,
(b) nonpublic internal companies not quoted on the
stock exchange with employees holding majority stakes, and
(c) nonpublic external companies not quoted on the stock
exchange with employees and funds holding comparably
large shareholdings.
The proponents of mass privatization argued that its
main advantages were the speed at which large parts of
economy would be transferred to the private sector and its
contribution to starting of capital markets in countries in
transition. [Lipton and Sachs (1990), Frydman et al. (1997)].
Mass privatization indeed involved a large part of the corpo-rate
(non-financial) sector in Slovenia3 but was spread over
five years. Unlike in similar programs implemented else-where,
privatization was decentralized on both the supply
and demand sides, and in principle a wide spectrum of
options was made available in the privatization law. Never-theless,
in practice that model limited the selection of priva-tization
methods on both sides. Of the 1,386 companies
that underwent mass privatization, less than one tenth
(albeit the largest ones) used public offerings and are quot-ed
on the stock exchange. All public offerings were over-subscribed,
some of them by several times. The majority of
citizens, however, invested certificates in companies (as
their current and former employees) and in privatization
funds (all quoted on the stock exchange). Mass privatization
was formally completed at the end of 1998 but has actually
remained uncompleted on both the demand and supply
sides. The portfolio of the state holding company (Slovenian
Development Corporation-SDC) consisted of a few hun-dred
companies that were excluded from mass privatization
at its early stage, voluntarily for prior restructuring or com-pulsorily
within the state-led rehabilitation of two dominant
banks. On the other hand, substantial portions of certificates
in the portfolios of privatization funds remained unused (the
so-called privatization gap).
There was a wide agreement that success of mass priva-tization
would ultimately depend on the speed and effec-tiveness
of restructuring at the micro level. The argument
that the ensuing concentration of diffuse ownership and
consolidation of control would serve as a prelude to the
entry of strategic investors to companies, enabling those
companies to gain access to external financing to ensure
restructuring, pointed to difficult trade-offs. Whereas mass
privatization was state administered, it was argued that sec-ondary
privatization should be essentially market driven. For
that reason the market would have to be appropriately reg-ulated,
and the questions arose whether the standard West-ern
regulations were sufficient for the purpose or whether
they would actually hinder the speed of secondary privatiza-tion
and invite fraudulence in its course. The speed of sec-ondary
privatization threatened its transparency and fair-ness,
and this, in turn, would obviously affect the speed and
effectiveness of corporate restructuring. This required a
high degree of sensitivity to the specific ownership and con-trol
structures of companies that had emerged from mass
privatization in the actions of policy makers, legislators and
regulators who were responsible for guiding, facilitating and
promoting secondary privatization.
1.2. Review of the Empirical Evidence on
Mass Privatization in Slovenia
Numerous empirical studies have focused on the effects
of initial ownership and control structures, as well as their
subsequent changes, on corporate restructuring and perfor-mance
– and vice versa – in countries in transition (see Mur-rel
and Djankov, 2000, for their synthesis). Different owner-ship
and control structures of companies that reflect the
specifics of mass privatization programs in individual coun-tries
impair meaningful international comparisons. Practical
solutions for secondary privatization must be sought at the
level of individual countries. International research, never-theless,
provides for comparisons that are of value in that
search.
There is a growing body of empirical work in Slovenia
that studies the effects of privatization (via the ownership
and control structures emerging as a result of privatization)
on corporate restructuring, finance and performance fol-lowing
privatization. Economists believe that optimal own-ership
and control structures will ultimately result from
strategic management and restructuring, leading to an
expansion of assets, employment and sales (i.e. revenue-generating
restructuring) which in turn improves the per-formance
of companies and increases their values in a long
run. Faster adoption of hard budget constraints and strate-gies
for expansion of markets is evidenced in companies that
face competition on product markets (Puæko, 2000). Sales
on foreign markets evidently force strategic restructuring
(Prašnikar, Domadenik and Svejnar, 1999). Managers per-ceive
competing companies as the most likely raiders, and
most takeovers are indeed horizontal in Slovenia (Bešter,
1999). Hence competition on product markets heightens
3 Mass privatization concerned only the commercial companies and involved a group of them that accounted for approx. 60 percent of the total
corporate sector in the country in various terms at its commencement (1994) and roughly contributed over 40 percent of its labor force and value
added and to over 30 percent of its assets and capital at the end of the process (1998). The respective figures illustrate that a lot of ownership restruc-turing
in the country took place in other forms via nationalization, spontaneous privatization and private sector development, and corporate restruc-turing
via asset (dis)investments and shrinking of labor force (Simoneti, Rojec and Rems, 2000).

9
the likelihood of both strategic management and restructur-ing
and fast and effective secondary privatization.
Defensive restructuring (defined as consisting of labor
force reductions, contraction of assets and moderate
growth of sales revenues) is a distinguishing characteristic of
companies that underwent mass privatization, as opposed
to new private firms and subsidiaries that are closely held by
their owners and/or controlled by their creditors. New pri-vate
firms show accelerated growth of investments, sales
revenues, profits, as well as operating cash flows, and they
are generators of new jobs. Subsidiaries excluded from mass
privatization show higher investments and an extraordinary
growth of operating cash flows4. The fastest growth in every
respect is seen in companies with foreign strategic investors.
On the other hand, while the leaders in defensive restruc-turing
are the state-held, non-privatized companies, the
largest investments in assets are recorded in nationalized
public utilities5.
Specific components and forms of defensive restructur-ing
are widely observed in companies that underwent mass
privatization. In empirical research on the respective forms,
intensity, speed and effects of corporate restructuring, com-panies
are most commonly disaggregated with respect to
the relative importance of external and internal ownership,
implicitly assuming that there were two options of mass pri-vatization.
'Employeeism' – defined as an antagonistic relation
between employees (over-represented on supervisory
boards and fighting for salary benefits) and managers
(argued to behave like external owners [i.e., funds] attempt-ing
to maximize cash flows) – takes on different forms in
companies privatized to internal and external owners. The
latter do not exhibit the typical positive correlation between
value added and investments but seem to evidence appro-priation
of depreciation resources for salary benefits, while
the former show typical trade-offs between salaries and
investment (Prašnikar and Svejnar, 1998). Larger layoffs
occur in the group of companies with majority employee
representation on supervisory boards than in the group with
minority employee representation6. Nevertheless, differ-ences
between the two groups with respect to the effects
of defensive restructuring and strategic restructuring (e.g.,
CASE Reports No. 46
investments in human capital, RD and market research)
are insignificant (Prašnikar, Domadenik and Svejnar, 1999).
The likelihood of strategic management would be height-ened
if managers were rewarded in share options (rather
than in fixed salaries, as is the prevailing practice) for their
contribution to performance improvement in the long run
(Prašnikar, Ferligoj, Cirman and Valentincic, 1999).
^^
Multi-year surveys based on large samples of companies
reveal that outsider-owned companies that used public
offerings in privatization show superior initial performance
in relation to all other companies, and the gap tends to
widen over time. Larger operating cash flows and low
indebtedness is a characteristic feature of the former. More-over,
their restructuring incurs lesser layoffs and yields high-er
productivity gains, whereas the growth of salaries is due
to higher skills of their labor force.
Reliance on internal resources is a typical feature of
defensive corporate restructuring. Access to external
financing is constrained due to poor development of finan-cial
system. The latter, in turn, is often argued to result from
the poor corporate governance that emerged from mass
privatization and the ineffective ensuing ownership concen-tration.
Illiquid capital markets, combined with diffuse own-ership,
do not provide for effective corporate governance,
but instead drive the controversial concentration of owner-ship
in the hands of funds that should be drastically reducing
their stakes. In fact, these funds are emerging the largest
shareholders in most companies quoted on the stock
exchange (Gregoric, Prašnikar and Ribnikar, 2000). The cap-ital
^
market, which is doing a poor job of re-distributing own-ership,
precludes new issues of securities. Banks, in turn,
decline credits due to information asymmetry, or – when
they do grant them – price their credits too high because of
a high information premium (Ribnikar, 2000).
The stock exchange is discredited with both investors
and companies because of low transparency and speculative
trading (largely due to various restrictions on investments in
shares and large volumes of non-transferable shares), as well
as low liquidity largely due to asymmetrical treatment of
debt and equity securities and restrictions on foreign port-folio
investments. Citizens who became shareholders in
mass privatization thanks to their certificates maintain
4 Various techniques of privatization (apart from those used in mass privatization) contained in the law provided for the financial and organizational
restructuring of companies preceding privatization. This entailed breaking up large companies and groups of companies and free transfers of assets
among (newly created) legally independent enterprises. As an unexpected outcome of such restructuring, a number of companies (approx. 400) were
consequently indirectly privatized as subsidiaries of parent enterprises that were privatized according to the model of mass privatization. They account-ed
for some 20 percent of the total corporate sector in the country in 1998 (Simoneti, Rojec and Rems, 2000). It was not uncommon for employees
of subsidiaries to take part in the privatization of parent companies as former employees.
5 All public utilities and infrastructure objects of public interest were excluded from mass privatization and nationalized. In 1998 they accounted for
approx. 20 percent of the total corporate sector in the country. Such nationalization occurred also in selected (large) companies that underwent mass
privatization.
6 This classification does not exactly correspond with majority internal and external ownership, but rather reflects the size of the labor force and
the decision to avail of the legal provision that grants employees seats on supervisory boards in proportion to their numbers.

10
CASE Reports No. 46
extremely low propensities to invest their (cash) savings in
securities, greatly preferring bank deposits (Kleindienst and
Simoneti, 1999). Managers of companies are more inclined
to seek bank credits than to issue new securities on the
stock exchange. On the other hand, the supervisory boards
of companies (irrespective of the privatization option) tend
to reject the managers' proposals for equity financing when
they do arise, due to the limited financial resources of
incumbent owners and their consequent loss of control
(Simoneti and Jamnik, 2000).
With companies relying on internal resources and largely
free from servicing debts, financial discipline is obviously lack-ing.
Operating cash flows are not ploughed back for strategic
investments but are used for short-term financial invest-ments.
Smaller financial investments are the most distinguish-ing
characteristic of large companies with dominant owners in
relation to companies without such owners; the latter show
lower use of debt financing and higher salaries (Cirman and
Konic 2000). Companies on the stock exchange show higher
operating cash flows but smaller purchases of own shares
than the non-quoted privatized companies (Simoneti and
Jamnik, 2000). Regardless of whether shares are purchased
on the public market or troublesome owners are directly
bought out, such purchases of companies' own shares consol-idate
the control of incumbents from mass privatization.
Extensive data on the evolution of ownership structures
and concentration after mass privatization in Slovenia are stud-ied
in this paper. These data reveal that since completion of pri-vatization
at the end of 1999 almost 40% of initial shareholders
have already exited companies privatized through mass privati-zation.
At the end of 1999 ownership concentration is relative-ly
high: the five largest owners on average hold 61.5% percent
of votes in mass-privatized companies. Moreover, in Slovenia
para-state funds and privatization funds act as large sharehold-ers,
despite lacking the ability and motivation for proper cor-porate
governance. On the other side, many small sharehold-ers
are company insiders who act as a homogeneous group in
relation to external owners. It might well be that with concen-tration
of ownership in the period 1994–99 the problem of
managerial discretion was reduced, while the conflict of inter-est
between internal and external owners was exacerbated.
The state and para-state funds are reducing their own-ership
stakes in the companies from mass privatization,
while managers and strategic investors are increasing them.
It is observed that both groups are accumulating their shares
more intensively in companies which are not traded on the
stock exchange and therefore have limited transparency. In
addition, new strategic investors appearing through the end
of 1999 were almost exclusively of domestic origin. Initial
privatization (with free distribution of shares and limited
foreign and strategic investors) is followed by non-transpar-ent
domestic consolidation of ownership, where domestic
companies, managers and funds are the key players.
The relationship between changes in ownership and com-panies'
performance after mass privatization is also studied in
this paper. These empirical results are conclusive that sec-ondary
privatization had practically no positive effect on either
economic efficiency or on financial performance in the period
1995–1999 in Slovenia. Breakdowns by individual privatization
models, groups of companies, and individual years as well as
for the whole period did not yield any different results. The
problem of secondary privatization in Slovenia does not only
concern its low transparency and relatively slow pace, but
especially its failure to yield the expected positive effects on
economic efficiency and financial performance.
Mass privatization in Slovenia proved to be appropriate
for several hundred relatively small and labor-intensive
companies and for about one hundred well-performing,
large, capital-intensive companies. In the former, a majori-ty
of shares was acquired by the employees, while the lat-ter,
using public offerings, were quoted on the stock
exchange. Mass privatization, however, was inappropriate
for relatively large and capital-intensive companies requir-ing
substantial corporate restructuring, because they
required strategic investors and/or access to external
financing. Only around a hundred such companies (ones
that were making losses and unable to service debts) were
excluded from mass privatization. In the remaining several
hundred companies with similar economic characteristics,
stakes of comparable sizes went to employees and funds.
There is a strong conflict of interest between insiders and
outsiders, which is making the restructuring process very
difficult in these companies.
Empirical research has exposed and evidenced various
factors that prevent effective changes in ownership and con-trol
structures of companies conducive to their strategic
management and restructuring. They stem from the legal
and regulatory framework that makes up the corporate gov-ernance
regime established with mass privatization and per-petuated
in the post-privatization phase.
1.3. Legal, Institutional, Structural
and Political Barriers to Secondary
Privatization
There is a wide agreement in Slovenia that the owner-ship
and control structures created in mass privatization are
sub-optimal for strategic management and restructuring of
companies and will have to undergo profound changes in
secondary privatization. Their transitional nature stems
essentially from the transitional nature of incumbent owners
from mass privatization. They either will have to exit from
companies to provide for the entry of strategic investors, or
their ownership and control positions in companies will have
^

7 This requirement applies to joint stock companies with 50 and more shareholders (which was the prevailing legal form of privatized companies,
11
to be adjusted. For the most part, secondary privatization
actually concerns the consolidation of dispersed employees'
ownership, transformation of privatization funds and
improved governance of para-state funds. The following
questions arise: Do the legal and regulatory conditions for
fast, transparent and just secondary privatization (and for
the exit or transformation of owners) exist? If they are lack-ing,
does the political will to create them exist? And what
are the main factors constraining post-privatization owner-ship
changes? Specific constraints to its speed and effective-ness
that are legacies of the Slovenian mass privatization are
discussed below, with due consideration of the respective
routes of secondary privatization in three ownership groups
of companies which we label public, internal and external.
1.3.1. Postponed Transferability of Privatization
Shares
Discussion on the issues of potential stock exchange col-lapse,
inflation and the inequitable distribution of wealth
began already during the drafting of the privatization law, as
it was arbitrarily assumed that small shareholders would
start selling shares promptly following privatization. The
apprehension about the impossibility of creating sufficient
demand in the short run led to the decision to postpone
transferability of employees' shares from internal distribu-tion
for two years and from internal buyouts until credits
were fully paid, i.e. up to five years.
In order to ensure transparent secondary privatization
all tradable shares from mass privatization were to be issued
in dematerialized form and their transaction concluded
through the Clearing and Depository Company (CDD)
using the services of stockbrokers authorized by the Secu-rities
Market Agency (SMA)7. The CDD keeps a central
share register in which entries can be made only by their
owners/members and the stockbrokers. Whereas the
shares remain non-transferable until registered, it has been
left to the discretion of companies (and privatization funds)
how quickly or slowly to proceed. The compulsory two-month
registration deadline after the completion of privati-zation
(i.e., share distribution) by individual companies was
widely disregarded. A number of companies avoided regis-tration
by having been taken private promptly after privati-zation
by decisions made at shareholders' meetings.
The flaw of postponed transferability of shares resulted
in a flourishing non-organized market. Its existence immedi-ately
after privatization certainly facilitated early concentra-tion
of ownership. Such concentration, however, was driven
by inside information and information asymmetry concern-ing
expected capital gains from share trading, and hefty pre-miums
from selling controlling stakes. It proceeded at the
cost of small shareholders in an environment of nearly total
disregard of their rights due the regulatory absence of
takeover rules.
A simple method for such trading was the purchase of
future contracts on the shares from public offerings and
internal privatization at low prices and the simultaneous col-lection
of in blanco proxy authorization for several years8.
The stockbrokers servicing the share trading on the stock
exchange and maintaining a kind of organized quasi-public
market for the shares of nonpublic companies were cer-tainly
in a position to accumulate shares promptly after
completed privatization by individual companies. Managers
clearly had an advantage on internal markets of companies
in purchasing shares acquired by employees with certifi-cates
and large discounts for credits.
Postponed transferability of shares has had far-reaching
adverse effects on secondary privatization and strategic cor-porate
restructuring and management. Incumbent owners
were given latitude to consolidate control and introduce
ownership and control restrictions in companies' charters.
Thereby separation of control between two incumbent
blocks of owners has been entrenched. Speculative share
trading and control acquisitions have discredited the securi-ties
market with investors and companies and postponed
development of the primary market in the longer run.
1.3.2. Trading with Privatization Shares
on the Stock Exchange
Public companies (and privatization funds) are required
to be quoted on the Ljubljana Stock Exchange (LSE). The
process of quotation gained momentum only at the end of
1998 following public appeals of the SMA and the exertion
of pressure on the governing bodies of companies by share-holders
observing price differentials on the organized and
non-organized markets.
The prices determined by the secondary trading on the
stock exchange rose quickly in relation to the prices on the
non-organized market. The shares of larger and well per-forming
companies have been quite liquid and traded at fair-ly
stable price levels. The shares of smaller (and more poor-ly
performing) companies have been less liquid, and their
prices quite volatile (Stock Exchange Focus, 2000). Price
instability on the stock exchange was contributed to by
blocks of shares coming onto the stock exchange at stag-
since the scheme of mass privatization did not provide for collective employee acquisitions), as well as to privatization funds.
8 Such in blanco long-term proxy authorizations were later prohibited.
CASE Reports No. 46

12
gered times due to postponed transferability of employees
while other blocks of shares in the same companies were
still being traded on the non-organized market. As a result,
the concentration of shares was quicker and higher in small-er
companies and in the companies with relatively large vol-umes
of nontransferable employee shares9.
The initial stock exchange boom was mostly due to for-eign
portfolio investors. Due to concerns about their poten-tial
destabilizing effects, the Bank of Slovenia (BOS) intro-duced
restrictions on them in 1997. In that year such invest-ments
accounted for 12 percent of stock market capitaliza-tion
and were concentrated in a small number of companies
that had the most liquid shares and contributed 60 percent
of total market turnover in 1997 (Stock Exchange Focus,
2000). Foreign portfolio investors were required to open
custodian accounts with authorized domestic banks and
could trade shares quoted on the LSE only among them-selves
over several years or sell them to domestic investors
with a high exit commission. Such restrictions have been
considerably relaxed since their introduction but effectively
caused the withdrawal of foreign investors. This, in turn, led
to falling liquidity and prices on the LSE10. Foreign investors
have only recently begun to re-appear.
The initial liquidity on the stock exchange was also due
to enthusiastic domestic investors, including privatized
companies making financial investments by purchasing
shares of other companies as well as their own shares. But
after experiencing (accounting) losses due to the falling
prices they, too, became disillusioned with investing in cor-porate
securities.
Some other factors have inhibited development of the
capital market. Relatively risk free debt securities with high
interest rates issued by the state, BOS and commercial
banks are more attractive to investors than riskier corpo-rate
securities. Dividends and interests are asymmetrically
treated: interest is not taxed while dividends are taxed11.
Moreover, a relatively high tax is charged on capital gains if
securities are sold less than 3 years after purchase.
Moreover, as the result of the illiquid stock market and
the restrictions on outward portfolio investments the devel-opment
of domestic institutional investors has been slow.
Having recently been allowed to invest 10 percent of their
portfolios abroad, domestic mutual funds are gaining in
importance. Some management companies of privatization
funds consider establishing mutual funds abroad to avoid
restrictions on outward portfolio investments12. Pension
funds are only now emerging but are legally bound to yield
guaranteed returns on pension policies tied to the returns of
the state securities; they are not likely to play a role in deep-ening
of the corporate securities market.
1.3.3. Market for Corporate Control
Takeover, merger, and acquisition activity has been on the
rise since the completion of privatization by individual com-panies.
Two parallel processes have driven it: (a) reintegration
of businesses that had earlier been broken up13, with a view
toward increased competitiveness on product markets, and
(b) concentration of ownership by shareholders with short-term
financial interests or to gain control over companies14.
The takeover act was delayed for several years despite
severe pressures for its passage, as companies resisted quo-tation
and registration of shares in the absence of clear rules
for concentration of ownership and for proxy voting. It was
enacted at the end of 1997 after an extended period of con-troversial
debates15, and after substantial ownership
changes had already occurred and ownership and voting
restrictions had already been introduced in companies'
statutes.
The act entrusted the SMA and antimonopoly commis-sion16
to oversee the control acquisitions in companies
9 Since the entry into the central share register until the beginning of the last quarter of 1998 the number of shareholders decreased much more
in smaller public companies (by up to 82 percent) than in larger ones (between 20–40 percent on average) (Lahovnik, 1999). The lowest concentra-tion
has been observed for a large company that directly restituted shares to a large number of former small shareholders and had completed internal
distribution at an early stage of privatization process, as a result of which the employees' shares were all transferable at the time of quotation (Stock
Exchange Focus, 2000).
10 Some companies are considering issuing global depository receipts on foreign exchanges to counteract the low prices of their shares on the LSE.
11 Interest on bank deposits and on debt securities is not taxed.
12 For the time being, foreign mutual funds are not allowed to issue coupons in Slovenia, and hence domestic investors cannot invest in their
CASE Reports No. 46
coupons abroad.
13 Such reintegration entails, for example, reversals of spin-offs undertaken in pre-privatization leading to the reconstitution of groups of compa-nies,
but such reversals may as well be postponed until control of parent companies is consolidated.
14 The managers perceive the shareholders as likely raiders – especially competing companies and business partners, followed by privatization and
state funds (Bešter, 1999).
15 Simoneti (1997a) proposed a dual approach to the regulation of market for corporate control of public and nonpublic companies. Whereas stan-dard
rules of ownership concentration should be adopted only for public companies, looser but clear rules should be adopted for nonpublic compa-nies,
with emphasis on the rules for voting on legal changes at shareholders' meetings.
16 The antimonopoly commission has frequently proved its narrow and short-term view on competition, limiting its considerations to domestic mar-ket
share and domestic competitors and failing to apprehend the need for strengthening international competitiveness given the accelerated opening
of the economy.

17 The general lack of liquidity and overall fall of prices has promoted a lively discussion (albeit with no solid arguments offered) about whether the
18 Possible differences between adjustments in the values of assets and capital represent extraordinary (accounting) revenues (losses) that can be
13
with more than one billion tolars' worth of equity capital
and over 500 shareholders. All such companies have to
report on every 5 percent acquisition by individual and
related shareholders. Non-reported acquisitions do not
confer control or yield dividends. Moreover, two thresh-olds
of 25 and 40 percent respectively were set for
mandatory bids and the shareholders that had already
accumulated large stakes were obliged ex post to such bids
in further acquisitions. In addition, mandatory bids at the
two thresholds are obligatory for voting coalitions, irre-spective
of the value of equity capital of companies or the
number of their shareholders.
In order to facilitate transparency of control acquisi-tions,
a batch market was introduced on the stock exchange
in 1997. At the time of writing, batch deals already account
for over one half of the total turnover of the stock
exchange. The stockbrokers that lost businesses from share
trading soon saw a new opportunity in servicing takeovers.
They act on behalf of both raiders and defenders. Being
allowed to trade on their own account, they carefully
orchestrate control acquisitions among several (formally
unrelated) persons. There are no limitations for applications
of batch deals on the stock exchange and settlement time is
longer than for regular share trading. To counteract the neg-ative
effects on prices in regular share trading the stock
exchange is contemplating the introduction of limits on the
price differentials and size of batches that can be applied on
a daily basis.
Takeover rules are promoted as a means of protection
of small shareholders in secondary privatization. In view
of the dispersed ownership resulting from mass privatiza-tion,
such rules have been applied to all companies with
tradable shares. This policy, however, hinders the process
of taking private nonpublic companies. It is not possible to
protect the rights of small shareholders in companies not
quoted on the stock exchange with takeover rules, as
possibilities for exit at fair prices are so limited in such
companies. It is unreasonable to insist on such rules on
voting coalitions when two blocks of owners share con-trol,
especially in the case of external companies. On the
other hand, legally non-related persons acting in de facto
coalitions have accumulated in disguised ways large vol-umes
of shares, not all of them with voting rights. Never-theless,
the passivity of small shareholders and rules
requiring simple majority votes make them controlling
shareholders at shareholders' meetings. More control
over acquisitions of formally unrelated persons is
required.
1.3.4. Disclosure of Information on Companies
Due to the unsettled conditions on the securities mar-ket
and Slovenian discretionary accounting standards it is
difficult to value companies objectively. Book values and
profits reflect diverse accounting practices that tend to be
pursued in the short-term interests of shareholders rather
than with a view toward the long-term development needs
of the companies. Hence, standard valuation indicators such
as price-earning ratios and market-to-book values are quite
unreliable17. The issue is compounded in nonpublic compa-nies,
which are not subject to the same reporting require-ments
as companies quoted on the stock exchange.
Poor performance could be argued to be a factor that
speeds up secondary privatization. Nevertheless, compa-nies
can manipulate performance indicators by availing of
their historical legacies, as performance and high book val-ues
can be maintained in the short run with defensive
restructuring and accounting adjustments. The Slovenian
accounting profession maintains a conservative approach to
the accounting standards that preserve historical book val-ues
from mass privatization rather than promoting the dis-covery
of market prices reflecting future cash flows that
would demonstrate the true capabilities of companies to
service shareholders and potential investors.
In order to allow for the allocation of long-term
reserves created in mass privatization (equal to the
accounting difference between book values of assets and
their values established by formal valuation using the dis-counted
future cash flow method), significant discretion in
decisions on depreciation is granted. Consequently, dis-cretion
is also given in decisions on salaries. Moreover,
accounting standards allow for keeping book values of
companies high by upward adjustments of values of capi-tal
and assets for inflation18. But the high levels of equity
capital from mass privatization and the upward adjust-ments
of its value yield small returns. Managers are slow-ly
beginning to understand the role of dividends in corpo-rate
governance and finance. They face a trade-off
between decreasing the value of capital to allow for pay-ment
of dividends and maintaining the high value of capi-tal.
While book values can be kept up by accounting deci-sions,
to decrease them it is necessary for shareholders to
formally agree ex-ante on the revaluation of the assets. An
alternative way to decrease book values while maintaining
the value of shares is re-purchase and annulment of
shares traded on the market, but this increases the threat
of hostile takeovers.
prices on the LSE are over- or undervalued in relation to the (accounting) performances of companies.
used for depreciation.
CASE Reports No. 46

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CASE Reports No. 46
1.3.5. Supervisory Boards
Supervisory boards represent the most important vehicle
for gaining reliable information on companies and controlling
managers. Their role in secondary privatization may actually
be central19. Initially, a frequent motive behind ownership
consolidation was to gain representation on supervisory
boards. All major decisions on mergers and acquisitions,
takeovers, issuing of debt and equity and adjustments of asset
values, as well as concerning sales of capital and assets, must
be approved by these boards. As a result, supervisory boards
represent the main constraint to secondary privatization via
access to external financing and sales to strategic investors
which affect the control positions of incumbents.
The first supervisory boards, which replaced the former
workers' councils (and continued serving in the early post-pri-vatization
period), were appointed by managers in the course
of privatization. The ability of such boards to control man-agers
was widely questioned. As a result of incumbents' con-solidation
of ownership and voting powers, the membership
of supervisory boards has begun changing fast, and the
increased frequency of meetings demonstrates their activism.
The presence of incumbent owners on supervisory
boards, however, is controversial. There is a major informa-tion
asymmetry between managerial supervisory board
members and other members that lack understanding of
accounting and financial issues.
Another controversy over supervisory boards concerns
the representation of employees on two grounds: due to their
role as owners and due to legislation mandating certain levels
of supervisory board representation based on the size of labor
force. In companies with 500 and more employees, one third
of seats on the supervisory board are reserved for employees,
and in companies with 1000 or more employees they can
occupy two thirds of seats. In addition, a labor director (i.e., a
member of the executive board representing employees) is
required by the law for the companies with more than 500
employees. There is a general understanding that the latter
requirements refer to public companies, but they are also
applied in nonpublic external companies. Such companies have
both large labor forces and large employee shares, and there is
extensive block voting at shareholder meetings by employees.
Such legal provisions clearly preserve the level of influ-ence
of employees from the pre-privatization era, as a result
of which employees are in position to resist layoffs20 and to
claim salary raises and related benefits. While representative
of funds may deter the self-dealing of managers and employ-ee
expropriation of residual income and profits, there is also
a risk that funds, as large-scale traders with short-term
financial interests, will themselves abuse internal informa-tion
and control for self-dealing and other forms of over-reaching.
Efforts to streamline the role of the supervisory boards
in order to speed up secondary privatization need to include
more balanced legal provisions for employee representa-tion,
enhancement of the professional capacities of their
members and mechanisms for ensuring a focus on the long-term
development of the companies by linking remunera-tion
to the contribution of the boards to the performance in
the long run. The association of supervisory board presi-dents
proposes the introduction of licensing requirements
that would impose guild norms on members' behavior
(while the legal personal liability of individual members obvi-ously
fails to serve its purpose)21.
1.3.6. Financing of Companies and Secondary
Privatization
Secondary privatization is taking place in an environment
of scarce external financial resources and therefore repre-sents
an opportunity cost for strategic restructuring. This is
because the internal resources of companies are not
ploughed back into their development but are used to make
financial investments, as well as to attempt (or defend
against) takeovers and to buy out troublesome owners.
The large scale of purchasing of own shares is evidence of
the importance of such actions in enterprise activity. After
the barter deals used by funds on internal markets, it has
been the most important technique of secondary privatiza-tion,
paradoxically consolidating control of incumbents.
Moreover, secondary privatization incurs high transaction
costs due to poor information disclosure (due to peculiar
accounting standards) and taxes and brokerage commissions
(due to over-regulation of capital markets). At the same
time ineffective ownership concentration of privatization
funds and trading with pension coupons detract investments
in companies22.
19 The emerging network of domestic companies linked through ownership and supervisory board membership in Slovenia was studied by Pahor,
Ferligoj and Prašnikar (2000).
20 The largest layoffs actually occurred in the course of privatization when employees massively availed of state-sponsored schemes for early retire-ment.
This, however, did not preclude their participation in privatization of companies as former employees (who had the same rights to acquire shares
on a privileged basis as current employees). Such early retirement schemes were later abolished, and thus later layoffs occur as a result of decisions
made in relation to company restructuring.
21 Such personal liabilities are difficult to enforce even in countries with sophisticated courts.
22 There are various other examples of the opportunity cost of secondary privatization for strategic restructuring, e.g. public companies' being
forced to simultaneous (expensive) quotation on foreign markets in order to maintain the prices on the LSE rather than for the purpose of raising fresh
financing.

15
Financial institutions did not play any significant role in
mass privatization, either by leveraging employees' buyouts
(as they were directly leveraged by the state) or by acquir-ing
equity stakes themselves. Banks were given a choice to
convert non-performing debts of companies to equity. This
technique of privatization, used mostly in the state-led reha-bilitation
of two dominant banks and in the financial restruc-turing
of the SDC companies, was widely opposed by
banks. On the other hand, both banks and insurance com-panies
were encouraged to establish privatization fund man-agement
companies. Thus, while themselves being partly
owned by non-financial companies23, banks and insurance
companies in turn became the indirect owners of such com-panies
in mass privatization.
Such cross-ownership structures within and between
the financial and corporate sectors clearly gives rise to an
array of conflicts of interests, including, for example, the
threat of soft financing of companies and restriction of com-petition
within the financial sector (and even its re-integra-tion)
24. Banks are reluctant to finance companies that are
poorly governed and lack financial discipline or to support
secondary privatization. Their engagement in the financing
of companies and secondary privatization depends on
improved governance of companies and their owners. To
that end, there is a realistic possibility for incumbent own-ers
to leverage each other in secondary privatization by
converting their equity securities from mass privatization
into debt securities.
1.3.7. Employee Ownership
The extent of employee ownership which emerged
from mass privatization is widely viewed in Slovenia as close
to optimal. Such views are partly linked to the tradition of
labor self-management under socialism, but the three mass
privatization models actually varied the extent of employee
ownership to suit the economic characteristics of compa-nies.
Problems stem from continuing dispersion, postponed
transferability of employees' shares, their unsettled liabilities
from privatization and extensive representation on supervi-sory
boards.
CASE Reports No. 46
Employees took part in mass privatization as individuals,
with no limitations on their liability to pay off credits
received from the state for financing share acquisitions.
Nevertheless, collectively they have an interest in making
regular payments, as failure to do so will reactivate the role
of the state in corporate governance. They have conflicting
objectives: maximization of salary benefits in the short run
and employment security in the long run. They are legally
granted a majority of seats on the supervisory boards and
often combine their votes with the votes of small share-holders
from public offerings in assemblies25. They are thus
in a position to appropriate value added for salary benefits
at the expense of depreciation and profits, as well as to vote
down sales to strategic investors or the use of external
financing if it is supported by funds and/or managers.
Employee ownership is expected to decline in relative
and absolute terms in consequence of sales of their shares
from privatization and expansion of capital financed from
external sources or without their participation. Alternative-ly,
employee ownership could be expanded in secondary
privatization if the funds agreed to leverage purchases of
their shares by the employees. Employee ownership could
be made a permanent feature in optimal sizes through col-lective
ownership schemes with clearly defined rules for
entry and exit, minimum size of individual ownership and
profit sharing. Nevertheless, employees who wish to do so
must be given the opportunity to exit at fair prices (Simon-eti,
1997).
There is a legal basis for the establishment of collective
employee ownership schemes, but few companies have
availed of it in practice. The state has not offered any
inducements to promote such schemes (e.g., tax benefits
for paying salaries in shares). Moreover, as long as the con-trol
structures are not consolidated managers and funds are
unlikely to support them. Collective employee ownership
schemes, however, offer a systemic solution for speeding up
the secondary privatization of nonpublic companies. Perfor-mance-
based compensation payable in the company's
shares purchased on secondary markets (or possibly lever-aged
new share issues, with credits offered to employees by
banks and guaranteed by the schemes) would help employ-ees
identify with the objectives of companies. This would, in
23 The law on the privatization of insurance companies has been challenged in the constitutional court, as it does not grant priority property claims
to investors (including privatized companies). The argument in this respect is that the insurance companies did not take advantage of the opportunity
to convert into mutual insurance schemes, which would have formally guaranteed their participants the right to claim shares at the time of their priva-tization,
in compensation for earlier retained profits.
24 In the course of mass privatization two dominant banks were nationalized after they had been successfully rehabilitated through the issuing of
state bonds. Prior to this nationalization there had been a major breakup of monopolized banks, with the newly spun-off banks partly owned by the
mother banks and also, in large part, by (privatized) companies. Both banks are acquiring stakes of their daughters on the market in an attempt to
reconstitute bank groups. This will have a direct effect on transformation of privatization funds via mergers, but may also require the selling of man-agement
companies in order to make the re-integration of financial institutions possible at all.
25 Small shareholders from public offerings were often related in various ways to employees and/or companies, as kin, business partners or resi-dents
in the regions where the companies were located. They were encouraged to invest certificates in semi-closed subscriptions organized by com-panies.

16
CASE Reports No. 46
turn, increase the likelihood of both accessing external debt
financing and exit of funds, by heightening the interest of
strategic investors in such companies. Alternatively, funds
could be appropriately encouraged to exit from governing
bodies of companies by converting equity to debt securities
or using other schemes of seller financing of companies or
employees' schemes (Simoneti, 1997).
1.3.8. Transformation of Privatization Funds26
Privatization funds were intended as a corporate gover-nance
correction to extensive employee ownership and
expected to help companies to find strategic investors. They
were not intended to be active owners, as their borrowing
power is limited27, and they cannot raise financing on the
capital market where they are quoted. As closed-ended
investment funds with practically no restrictions on the con-centration
of ownership in companies but with severe limits
on concentration of their own ownership, they are transi-tional
features. By law, they are obliged to transform into
regular investment funds or ordinary joint stock companies
(i.e., financial holdings) by mid-2002.
The role of privatization funds in corporate governance
and secondary privatization is controversial for various
reasons. The most important is the gap from mass privati-zation28.
This gap, which at the completion of privatization
process in 1998 represented close to 60 percent of their
portfolios and at present still accounts for some 30 percent
of them29, has constrained the needed restructuring of
portfolios. Even worse, it gives the state a convenient
excuse to postpone both the privatization of nationalized
property30 and the adoption of rules on transformation of
privatization funds. In the meantime, transformation has
occurred in a non-transparent manner, with fund managers
becoming directly and indirectly the controlling sharehold-ers
of privatization funds. The momentum for effectively
regulating the transformation of the funds has been wast-ed,
and the drafting of regulation has been made more
cumbersome by the developments that have taken place
during these delays.
The quotation of privatization funds was postponed for
a couple years because of this gap. The initial price on the
LSE was set between 20 and 30 percent of the NAV, which
was 2–3 times higher than the prices on the non-organized
market beforehand (Stock Exchange Focus, 2000). The
market valuation has effectively turned all privatization funds
into takeover targets, although formally the stakes of indi-vidual
shareholders cannot exceed 5 percent, and privatiza-tion
funds cannot hold shares one in another. As a result,
their managers have incentives to engage in non-transparent
acquisitions of fund shares through legally unrelated persons
(but allegedly related to them informally).
On the other hand, privatization funds have relatively
high obligations to their managers: management fees are
high and calculated on the basis of the NAV, reflecting the
book values of non-tradable securities dominating the port-folios
of privatization funds31. Managers have no incentives
to engage in corporate restructuring at their own cost
(reduced profits) as benefits would accrue to the funds'
shareholders in the short run. Fees are partly payable in fund
shares, and fund managers' stakes in the funds have become
significant as a result of this factor alone.
The funds' portfolios have been adjusted through barter
deals on the internal market of privatization and para-state
funds, purchases and sales of shares on the organized and
non-organized public markets and internal markets of com-panies,
as well as by mergers and splits of funds managed by
the same companies. Via such mergers, the number of pri-vatization
funds has decreased from the original 78 to 46.
Restructuring of portfolios with respect to combinations of
tradable and non-tradable securities and unused certificates
has taken various directions. In some cases certificates rep-resent
up to 80 percent of the portfolio, in other cases trad-able
securities are dominant. Such reorganizations have
been affected through voting at shareholders' meetings.
Most differentials in prices (i.e., variations in the rate of dis-count
of the NAV) can be explained by the structures and
sizes of portfolios. Traded with large discounts, the shares of
empty funds (i.e. those with large portions of unused cer-tificates)
are currently (paradoxically) one of the most liquid
securities on the stock exchange.
26 The issue of the governance of privatization funds and the necessity of their transformation in Poland, Slovenia and Czech Republic was exten-sively
studied in Simoneti, Estrin, Böhm (eds.) (1999).
27 Their borrowing can amount to not more than 10 percent of the NAV of their portfolio and is subject to approval of supervisory boards and
SMA; it has been largely used for payment of management fees and for making financial investments on the stock exchange.
28 The privatization gap refers to the unused certificates in portfolios of privatization funds at the formal completion of mass privatization process
in 1998 (although its existence was predicted much earlier). It had various origins, among them the systemic flaw inherent in the model of mass priva-tization
based on the book values of social capital on the supply side and certificates denominated in tolars on the demand side. Incorrect calculations
of the total value of social capital available made by the state in designing the model of mass privatization also contributed to the gap.
29 In the meantime further transfers of SDC property, para-state funds and conversion of unused certificates into pension coupons have reduced
the privatization gap by half.
30 All public utilities and dominant banks were nationalized in the course of mass privatization. Moreover, dominant insurance companies are par-tially
non-privatized, but the extent of residual state capital in them is a subject of controversial legal disputes.
31 Book values are regularly adjusted for inflation, while the market prices of quoted shares vary due to changed liquidity on capital market rather
than companies' performances.

17
Possible routes of transformation depend on the quality
of assets that will be allocated for filling up the gap. In view
of the current ownership structure of funds and the struc-ture
of their portfolios, as well as the scenarios being con-sidered
for filling up the gap, the most realistic route is a
financial holding company or venture capital fund. A few
funds have already followed it, and others are considering it.
The SMA and managers of privatization funds prefer the
route of regular closed-ended investment funds, a form that
in practice protects small shareholders poorly. Although the
form of mutual funds is more appropriate for that purpose,
legislators have until recently not considered such transfor-mation
as possible (desired). It has actually been discour-aged
in various ways in practice, for example by accounting
standards requiring that capital losses (but not capital gains)
from changes in market prices of quoted securities be
entered on the accounts, while the NAVs can be kept high
by keeping investments in non-quoted securities. In both
cases substantial sales of shares of nonpublic companies and
dispersion of ownership of funds will need to occur. Adjust-ments
of portfolios will be difficult if the current restriction
on the funds' investments abroad persist until they are
transformed. An indirect way of resolving the problem of
the required adjustment of ownership may be to allow the
funds to invest in one another.
Disallowing or hindering transformation into mutual
funds has actually invited fraudulence on the part of privati-zation
fund managers, in the form of disguised sales of trad-able
securities to formally unrelated persons in order to
start up cash mutual funds. Due to developments in practice
so far, direct transformation of privatization funds into
mutual funds has become practically impossible. Even the
opportunity to introduce regulation like that in the Czech
Republic may have been wasted.
1.3.9. Residual State Property32
An important source of barriers to the evolution of opti-mal
ownership structures is the combination of significant
direct, and widespread indirect, residual state property in
privatized companies. The state is the single largest direct
and indirect residual shareholder of privatized companies.
CASE Reports No. 46
Although its shares were intended to be temporary, the
state has not demonstrated much will to exit, but instead
takes an active stance in governing bodies33. It thus is in
position to affect secondary privatization directly through
share trading, sales and purchases on secondary markets, as
well as through voting in the governing bodies. Its role in
secondary privatization goes even further: it is in a position
to actually re-nationalize privatized property or use it in its
economic policy34. Its direct role in secondary privatization
and as an agent of privatization (clearly favoring para-state
funds) is certainly in conflict with its role of regulator, legis-lator
and policy maker, as well as with its authority to
approve takeovers and purchases made by foreign strategic
investors. Substantial anecdotal evidence suggests that state
representatives tend to oppose sales of controlling stakes to
foreign strategic investors and hinder mergers and acquisi-tions.
The Slovenian Development Company (SDC) is in prin-ciple
a silent residual owner, but its voting powers are acti-vated
whenever employees fail to pay credits, as well as in
sales and other decisions that alter control structures or
change the legal status of companies35. It finds it difficult to
sell its residual stakes in portfolio companies to strategic
investors or to negotiate debt settlements with banks, due
to large employee stakes and poor performance. The priva-tization
funds, in turn, resist accepting them at book values,
the scenario for filling up the gap most strongly promoted
by the state36.
The para-state funds were intended as temporary own-ers
of companies, but the deadlines for their winding up are
vaguely defined, and the values and dynamics of their long-and
short-term financial obligations are not known. Expect-ing
to maintain the value of their portfolios in the long run,
they are reluctant to divest their portfolios. They were not
meant as active portfolio traders, which makes them
dependent on the profits of companies to meet their short-term
financial obligations. Neither were they meant to play
an active role in corporate governance and to be important
agents of secondary privatization, i.e. to concentrate own-ership
with the aim of selling it to strategic investors. In
principle such sales would have to be pursued with public
tenders, which is not practical and would actually be coun-terproductive
in the case of quoted securities. There are no
32 The problems of residual state property in Poland, Hungary, Slovenia and Czech Republic were extensively covered in Andreja Böhm (1999).
33 Two para-state funds are each represented on over 100 supervisory boards and vote at a larger number of shareholder meetings. Moreover, rep-resentatives
of branch ministries often sit on the same boards and vote in the same shareholder meetings. Changes in the government lead to replace-ments
of the state representatives on supervisory boards and in the management of the state funds and the SDC that via them extend to such changes
in companies. Moreover, anticipated changes in the government prompt sales of the para-state funds' shares in certain privatized companies to pre-clude
control of the new government over them.
34 For example, aid to companies are sometimes conditioned on sales of their shares in other companies.
35 This provision essentially threatens the external companies.
36 Currently there are debates on whether the gap should be filled up by privatization of the SDC or by privatization of its portfolio companies,
which would obviously affect the price of each privatization route. Moreover, it would have different effects on the transformation of privatization funds
and on secondary privatization, directly and indirectly.

18
limits on the size of their stakes in companies, and their
investment policies change whenever the government
changes. Although they are essentially financial investors,
they make appointments to the supervisory boards of com-panies,
whereby they can exercise influence on policies
regarding, for example, dividend payments and control
changes.
With considerable assistance from the state, both funds
have substantially adjusted their portfolios and decreased
the numbers of portfolio companies to a fraction of their
original number. The state sells its residual stakes in public
companies to them and by various measures helps them to
exit from nonpublic companies37. As the funds' financial
obligations represent implicit state debt, the state has a
legitimate ground to keep control over them and assist
them to consolidate their portfolios with shares in public
companies38. Moreover, both funds are likely beneficiaries in
the privatization of financial institutions and public utilities.
Transfer of their shares in nonpublic companies to privatiza-tion
funds contribute to secondary privatization, albeit with
no immediate effects.
The restitution fund was originally intended to financial-ly
compensate former owners with bonds redeemable in 15
years. Its life span is thus formally determined by the matu-rity
of the bonds. Their issuance proceeds slowly, in pace
with the (slow) settlement of restitution claims in the regu-lar
courts. They are traded on the stock exchange and must
be serviced, which imposes some discipline on the man-agers
of that fund. The total financial obligations of the fund
are not known, and the state keeps making new commit-ments
to victims of war and the previous regime. This gives
rise to the threat of another gap emerging, which prompts
considerations of new transfers of shares to the restitution
fund in the privatization of financial institutions.
The pension fund was originally created to sell its port-folio
in order to cover the growing deficit on the pension
account arising from the transition to a funded pension sys-tem.
Pension reform has been postponed for several years,
and the extent and dynamics of the deficit have not been
established. In the meantime, the fund has been used to
cover the deficit in the regular state budget with arbitrarily
defined advances to the pension account to finance its regu-lar
obligations39. The pension fund has also established a
separate fund that issued pension coupons to the employees
of the state institutions claiming compensation for unpaid
salaries and to the privatization fund shareholders who
decided to convert their unused certificates into such
coupons. These coupons can be used to open pension poli-cies
with the state pension fund in two years. In the interim
coupons are traded on the stock exchange40. The new task
of managing this second pension fund with private partici-pants
essentially makes it a permanent institution, as state-guaranteed
returns on pension policies make it impossible
for participants to shift to private pension funds unless those
guarantees are rescinded.
The resultant situation implies conflicts of interest that
may lead to eventual cross-dealings between the two funds
and moral hazard on the part of its managers (or the state)
at the cost of private participants. This must be prevented
by establishing Chinese walls between the two funds. More-over,
the pension fund from mass privatization should issue
debt securities (possibly with different maturities) to the
state, in order to clearly define the term structure of its
obligations. Such an arrangement would also provide for the
conversion of the para-state funds' portfolio equity to debt
holdings, allowing for their immediate exit from the govern-ing
bodies of companies. This would improve financial disci-pline
in both para-state funds and companies. The privatiza-tion
of public utilities and financial institutions via transfers of
blocks of portfolio shares (or bonds) to the state funds
would deepen the stock market only if public offerings are
used and portfolio shares (bonds) of the state funds are
quoted on the stock exchange. To exit from companies,
both funds, nevertheless, should be encouraged to start
investing in state securities, which is also in line with their
basic mission to service the state budget and to preempt its
deficit in future.
1.3.10. Strategic Investors
There appears to be a general scarcity of strategic
investors, who are the desired owners of public and non-public
companies. Mass privatization was effectively closed
to cash purchases by strategic investors. There were scat-tered
cases of concentrated acquisition of shares (i.e., acqui-sition
of stakes of over 10 percent) with certificates and at
discounted prices for credits. In the first phase of secondary
privatization, characterized by lumpy demand and frag-mented
supply, such strategic investors (apart from those
that participated in mass privatization) interested in large
blocks of shares were excluded too. As long as incumbent
37 For example, the shares owned by both para-state funds in nonpublic companies were partially transferred to privatization funds as a way of fil-ing
up the gap.
38 For example, the residual state stakes in two oil companies were sold to the state funds at an 11 percent premium price, albeit not via public
CASE Reports No. 46
tender, which is obligatory in sales of state property.
39 Recently, when facing problems with budget liquidity, the government resorted to the pension fund for advance payment of its obligations.
40 These coupons represent highly speculative and liquid security on the stock exchange.

19
owners resist selling to strategic investors, the latter are dis-couraged
from purchases and investments in view of con-tinued
free rider problems, unreliable information on com-panies'
performances and values, and the requirement to
make mandatory bids.
The liquidation of companies has been the most fre-quent
vehicle for entry of strategic investors. But govern-ment
protection of non-performing companies considered
too big to fail (and with a concern for maintaining employ-ment
in backward regions) has postponed the entry of
strategic investors to nonpublic external companies even by
this method.
Privatization funds were not intended as strategic
investors, but to mediate sales to such investors. Their
transformation into holdings makes them reluctant to per-form
that intended mission. The transformation of privati-zation
funds, however, is still transitory as far as the own-ership
of companies is concerned. Transformation to
mutual funds, in combination with the ESOPs and conver-sion
of the para-state funds' equity to debt, would speed
the entry of strategic investors with long-term interests in
the companies.
Foreign strategic investors are generally recognized as
an important source of corporate strategic restructuring,
but at the same time there is hostility against them, moti-vated
by unjustified fears of their prime interest in prosper-ous
companies and not in those needing restructuring41.
Foreigners were excluded from mass privatization in any
form. While there are no legal restrictions on foreign strate-gic
investments and on repatriation of profits, any sales of
privatized companies to foreigners that involve over 10 per-cent
of companies' capital must be approved by the state.
Moreover, there are administrative barriers to the entry of
such investors. The majority of the management team must
be Slovenian citizens, and foreigners soon become frustrat-ed
by lengthy procedures for obtaining various permits
from the local bureaucracy.
1.3.11. Political Economy of Privatization
Mass privatization was intended as a just and egalitarian
distribution to employees and the population at large. Vari-ous
restrictions on ownership concentration and control
consolidation have been introduced to prevent non-egali-tarian
redistribution in secondary privatization. Yet, despite
(and because of) these restrictions the first phase of sec-ondary
privatization was largely non-egalitarian. What is
worse, the increasingly tangled web of links among politics,
CASE Reports No. 46
companies and their owners created or strengthened in the
secondary privatization process threaten regulatory capture
and politicization in the next phase of ownership transfor-mation.
Early entry of strategic investors and creditors with
long-term interests in companies and the transparent taking
private of companies and privatization funds may not be in
the immediate interest of various parties, including the
state, employees, managers of companies and privatization
funds, as well as the operators and regulators of the securi-ties
market. Thus, secondary privatization may actually pro-ceed
slowly due to political economy considerations.
Secondary privatization has been definitely state-led,
and there may have been a political, as well as an econom-ic,
agenda behind it. In drafting and pursuing the latter the
state is self-captured by the former, which frequently
changed in the course of the year 2000. In the absence of an
effective market for corporate control political parties have
been given latitude to create their fiefdoms in the market
for political control. Economic policy based on administra-tive
restrictions and selective protectionism restrains mar-ket
competition and opens up the economy to the inter-vention
of politics. Such state policy (and state representa-tion
on the supervisory boards of companies and financial
institutions) in turn makes the state vulnerable and open to
pressures of various kinds. Companies and their owners
lobby for its aid and protectionism. Influential rent-bearers
and rent-seekers of various types (some of them allegedly
linked with political parties) pressure for regulatory and
legal solutions that help them preserve rents or protect
investments from secondary privatization. Political parties
expect pecuniary and political rents in return for such
favors, and these rents are obtained at the direct or indirect
expense of companies.
The main direct beneficiaries of the first phase of sec-ondary
privatization are clearly companies' managers and
sophisticated financial investors, notably stockbrokers and
managers of privatization funds. Its indirect beneficiaries are
stockbrokers, operators and supervisors of securities mar-kets
(including the SMA, CDC and LSE), charging various
fees to the shareholders of companies and privatization
funds. They also have vested financial interests in preempt-ing
early taking private of companies and privatization funds,
and are in position to influence the regulatory process.
Influential professional circles around the SMA, BOS and
the Association of Accountants clearly lack sensitivity to,
and understanding of, the problems in the corporate gover-nance
and finance regime. Favoring specific segments of
economy or persisting in flawed assumptions in their regu-latory
endeavors, they are not able to develop a holistic
41 A survey of managers of privatized companies confirmed that they do not perceive foreigners as likely raiders. Foreign strategic investors are
interested in technology and skill-intensive branches but prefer to invest in de novo private firms whereas in other branches they opt for establishing
branches in Slovenia rather than entering the product market via investments in privatized companies or their takeovers (Bešter, 1999).

20
view on the type of the regime that would suit the Sloven-ian
economy after mass privatization and would promote
competition throughout it.
The legislative process, as well as privatization and other
economic and social reforms deemed necessary to facilitate
market-led secondary privatization, have encountered
severe political constraints. The most recent governments
were difficult coalitions of political parties with diverse
views on the transitional issues and management of the
economy. Parliament was blocked by the bipolar structure
of the political party spectrum. Accession to the EU has
given the legislative process a push forward, but unsettled
legacies from mass privatization and structural imbalances
constraining competition will make it difficult to enforce the
laws that fully comply with the EU directives. The anticipat-ed
opening up of the economy with the accession to the EU
requires its re-integration in post-privatization that would
require addressing a number of transitional issues, notably
the conflict of interests between internal and external own-ers,
ownership by company managers, ownership of privati-zation
fund management companies, and exit of para-state
funds from companies.
1.4. Conclusions
In post-independence, Slovenian economic policy has
concentrated more on achieving macroeconomic stability
and keeping internal and external balances than on setting
up the conditions for competition on product and financial
markets by pursuing institutional and microeconomic
reforms. The financial sector has been favored against the
corporate sector and the banks have been favored against
the emerging capital market. The social sector reforms have
been long delayed. Foreign capital inflows (and capital out-flows),
however, have been formally and informally discour-aged.
Factors that prevent fast, transparent and effective sec-ondary
privatization stem from the legal and regulatory
framework of capital markets and companies, i.e. the cor-porate
governance and finance regime42 that was estab-lished
in mass privatization and is perpetuated in post-priva-tization
due to the slow legislative and regulatory process.
The legal and regulatory framework adopted to guide sec-ondary
privatization postpones transferability of large vol-umes
of shares and applies standard rules for ownership
concentration and consolidation of control to all privatized
companies with tradable shares, although only a small num-ber
of them are quoted on the stock exchange. Introduced
on the basis of flawed assumptions and assumed to protect
small shareholders, such restrictions and rules hinder the
orderly taking private of companies and privatization funds.
They are flagrantly abused in practice, while voice is evi-dently
captured to take private companies and privatization
funds. Rules for voting on legal changes and reorganizations
which under given conditions may provide better protection
to small investors, however, have not been established. As
many companies (as well as privatization funds) ought to
(will) be taken private, a systemic solution to that effect is
required.
The regulatory and legislative process lacks sensitivity
regarding the specific ownership and governance deficien-cies
concerning the three ownership groups of companies
and awareness of the need to regulate and facilitate differ-ent
routes of secondary privatization. To that effect, differ-ent
forms of consolidation of diffuse employee ownership
and different routes of transformation of privatization funds
ought to be allowed, regulated and facilitated. Moreover,
secondary privatization depends directly on the manner of
privatization of residual state property (including the exit of
para-state funds as owners or financial investors from com-panies),
and indirectly on the manner of privatization of pub-lic
utilities and financial institutions. The empirical evidence
shows that the first phase of secondary privatization has
been characterized by limited (foreign) competition, lack of
transparency and low speed, and suggests new anomalies
stemming from it. Delayed tackling of transitional issues in
Slovenia has wasted the momentum for fast and orderly sec-ondary
privatization and made search for better ownership
solutions even more cumbersome.
42 The corporate governance and finance regime that emerged from mass privatization combines the Anglo-Saxon type of securities market regu-lation
with the German two-tier governance and codetermination system. But the essential ingredients of the two systems are lacking: the reliable infor-mation
disclosure of the Anglo-Saxon system and the financial discipline imposed on managers and owners by the presence of banks (and strategic
investors) on supervisory boards in the German system. This raises the question of the internal coherence of the regime, i.e. the effectiveness of exit
and voice in corporate governance and in secondary privatization.
CASE Reports No. 46

21
Part II.
Secondary Privatization in Slovenia: Evolution in Ownership
Structure and Concentration after Mass Privatization
Marko Simoneti, Andreja Böhm, Marko Rems and Matija Rojec43
2.1. Introduction
The ownership structures and statuses of companies,
and consequently their distribution into the public, internal
and external categories, have to undergo profound changes
after mass privatization. We argue that to improve perfor-mance
of privatized companies, it is necessary (i) to enable
transitional owners to exit in order to accomplish higher
concentration of ownership, (ii) to expand the share of
strategic owners, and (iii) to reduce conflicts of interests
between funds and internal owners.
2.1.1. Exit of Transitional Owners and Concen-tration
of Ownership
Any mass privatization creates individual or institutional
shareholders that do not wish to remain shareholders in the
long run because of their patrimonial status or because they
cannot afford it. In many Slovenian companies the group of
initial shareholders that wish to sell at the first convenient
opportunity includes former employees, privatization funds
and para-state funds. Moreover, these unstable and dis-persed
ownership structures do not give sufficient power
and incentives to smaller shareholders to actively monitor
managers or to commence all-encompassing restructuring.
Significant changes in performance cannot be expected
even in internal companies that are already under the con-trol
of internal owners until ownership becomes more con-centrated
in the hands of those individuals that are decisive
for the success of the companies. The managers generally
expand their stakes in such companies by acquisition of the
stakes of former employees and various funds. From the
point of view of economic efficiency it is desirable for the
process of concentration to occur faster. From the point of
view of social fairness it is essential that this occur transpar-ently
and on markets that are accessible by as broad a cir-cle
of domestic and foreign buyers as possible.
2.1.2. Entry of Strategic Owners
Concentration of ownership after mass privatization is also
important as a means for entry of strategic investors to the
Slovenian privatized companies. Dispersed ownership struc-tures
make the entry of strategic investors, who generally
wish to acquire controlling stakes, quite difficult. Domestic
and foreign strategic owners were practically excluded from
primary privatization, while many companies require new
strategic alliances in order to survive or to prosper. Takeovers
of companies that are quoted on the stock exchange are reg-ulated
by a special act that enables the purchase of controlling
stakes from a number of small owners. The procedure is very
complex and relatively costly for new strategic partners, but it
is at least transparent and guarantees equal protection to all
sellers of shares from mass privatization. The situation is quite
different in nonpublic, internal and external, companies where
the views of internal owners and funds regarding the need,
ways and conditions for the entry of new strategic owners are
frequently opposed. Hence, in such cases transactions are less
transparent, and benefits from them less equitably distributed
while blockages in decision making are frequent due to con-flicts
of interests between internal owners and funds.
2.1.3. Conflicts of Interests between Internal
Owners and Funds
There is a strong conflict of interests between internal
and external owners in all three groups of companies that
have emerged from mass privatization. In addition to profits,
the internal owners have an interest in keeping jobs and long-term
development of companies. On the other hand, funds
primarily pursue financial interests and are essentially inter-ested
in profits and opportunities to exit profitably from their
investments by sale of shares. Important distinctions also
arise between privately managed privatization funds and
para-state funds in decision making on strategic matters of
companies. The relations within the group of internal owners
43 Marko Rems is from Privata d.o.o., Ljubljana; Matija Rojec is from the Faculty for Social Sciences, University of Ljubljana.
CASE Reports No. 46

22
are not always idyllic either, as the interests of managers, cur-rent
and former employees are objectively different. More-over,
new coalitions of owners are being formed in individual
companies in post-privatization, while the ones created at the
time of privatization are dismantled. Such instability and con-flicts
in relations among the main groups of owners do not
contribute to the successful operation of companies.
Conflicts between the advocates of internal and external
ownership, which delayed the adoption of the privatization
law in Slovenia for three years, were reflected in each single
company by the privatization model adopted under the
OTA. The conflicts between the interests of internal and
external owners are being alleviated with different intensity
and in different ways due to different institutional rules
applying to different forms (e.g., public vs. nonpublic com-panies)
and due to differences in the initial ownership struc-tures
with respect to the controlling groups of owners (e.g.,
internal vs. external companies).
The fewest conflicts between internal and external own-ers
exist in the group of public companies, which do not need
fast entry of strategic investors, as they perform relatively
better than others. Here the ability to protect their owner-ship
rights is in principle equal for all shareholders. Public
companies are traded on the stock exchange. The respective
shares represent liquid financial investments for owners, and
there are no strong reasons for the existence of conflicting
interests of internal and external owners in the long run.
The situation is different in nonpublic companies, where
both internal and external owners attempt to gain control
over companies. Battles occur concerning the conditions for
exit of one of the two groups from the company. Those fights,
however, should not significantly influence the operations of
companies, if they only concern the question of redistribution
of benefits between internal and external owners. The con-flicts
are of a different nature in nonpublic companies, in
which control must be acquired by new strategic investors to
ensure their long-term development. Here fights between
internal and external owners occur on the issue of who will
sell to strategic investors, and to what extent the interests of
internal owners and funds will be observed in such sales.
Blockages occur in decision making, since none of the parties
succeeds in prevailing completely over the other. The changes
required for improved operation of the companies are post-poned.
Slow resolution of conflicts of interests between inter-nal
owners and funds with respect to the entry of strategic
investors can have an especially negative effect, as this is not
only a question of redistribution of existing benefits between
internal and external owners.
This section analyzes how intensive the changes in owner-ship
structure and concentration in companies privatized as
public, internal and external are in the period from completed
privatization until the end of 1999. First, the initial ownership
structure and concentration is presented. Second, changes in
concentration are analyzed. Third, changes in ownership struc-ture
are presented and a transformation matrix is constructed,
showing how privatized companies shifted to other groups as
a result of changes in ownership structure in the post-privati-zation
phase. Finally, we present an overall assessment of post-privatization
ownership consolidation in Slovenia.
2.2. The Outcomes of Primary (Mass)
Privatization
2.2.1. Ownership Structure and Concentration at
the Time of Completion of Privatization
CASE Reports No. 46
Table 2.1: Initial ownership concentration in companies privatized as public (P), internal (I) and external (E)
C1 C5 C10 H Number of
shareholders
Public Average 16.0% 43.0% 50.0% 5.7% 6,898
St deviation 6.9% 11.5% 11.4% 3.4% 17,122
Minimum 3.8% 14.4% 27.6% 1.3% 6
Maximum 38.0% 99.6% 100.0% 25.0% 95,464
Internal Average 17.2% 42.6% 47.8% 5.8% 440
St deviation 4.2% 5.4% 6.6% 1.6% 762
Average 7.3% 27.6% 31.7% 2.0% 67
Maximum 26.2% 57.8% 72.9% 9.9% 7,410
External Average 24.2% 61.4% 67.7% 11.3% 481
St deviation 7.0% 10.1% 9.6% 4.9% 662
Minimum 10.4% 40.3% 48.0% 4.7% 38
Maximum 67.0% 98.6% 98.7% 46.9% 5,485
All companies Average 19.1% 49.0% 55.2% 7.6% 2,606
St deviation 6.0% 9.0% 9.2% 3.3% 6,182
Minimum 7.2% 27.5% 35.8% 2.7% 37
Maximum 43.7% 85.3% 90.5% 27.3% 36,120

23
Table 2.1 shows the levels of ownership concentration
in public, internal and external companies at the comple-tion
of privatization. The average number of shareholders
amounted to 6,898 in public companies, whereas it was
below 500 in both internal and external companies. Dif-ferences
in the number of shareholders result from differ-ent
numbers of individuals taking part in privatization.
These persons are employees in internal and external
companies, and employees and small shareholders in pub-lic
companies.
The larger number of shareholders in public companies
does not automatically mean lower concentration of own-ership,
as the measures of concentration are strongly affect-ed
by the stakes of the funds in companies. Table 2.2 shows
the concentration of ownership by the stake of the largest
owner (C1), and cumulative stakes of the five largest own-ers
(C5) and of the ten largest owners (C10), as well as the
H index (maximum = 100 percent). All calculated measures
of concentration show that the ownership concentration is
significantly higher in external companies than in internal
and public companies as a result of larger fund stakes.
Therefore, in comparison with all companies from mass
privatization the main characteristics of public companies
are a large number of shareholders and lower concentra-tion;
of internal companies a smaller number of sharehold-ers
and lower concentration, and of external companies a
smaller number of shareholders and higher concentration
(see Figure 2.1).
Figure 2.1: The number of shareholders and ownership concentration at the time of completion of privatization
It can be concluded that mass privatization in Slovenia set
up ab initio relatively concentrated ownership structures in
companies. Thus, 5 shareholders on average controlled
approx. 50 percent of capital in all companies (see C5 in all
companies), which is in principle conducive to the establish-ment
of effective corporate governance. On the other hand,
there were no strategic investors among the large share-holders.
In all companies the large shareholders were the
two para-state funds and privatization funds, which pursued
their own interests in corporate governance, while their
capabilities and incentives for effective corporate gover-nance
were questionable because of their institutional forms.
It should be pointed out that the upper measures of con-centration
calculated on the basis of the stakes of individual
owners obscure the fact that smaller owners are forming
coalitions to promote their own interests. The actual con-centration
was, therefore, even higher at the completion of
privatization. This holds especially for those companies that
are not actively traded on the stock exchange. After mass
privatization in Slovenia active trading has involved only a
fraction of companies in which the shareholders exercise
their rights essentially via voting. It is decisive in that respect
that homogenous and stable groups of owners that will con-trol
50 percent of the shares of companies are formed in the
long run. Two homogenous groups of internal and external
owners with conflicting interests were formed in all compa-nies
soon after mass privatization. The problem of establish-ing
effective corporate governance after mass privatization
does not result so much from dispersion of ownership but
from concentration of ownership by groups of owners with
conflicting interests. The analysis of changes of ownership
structures and ownership concentration by homogenous
groups of owners allows us to monitor that fight for control
over Slovenian companies. It should be taken into account
that some coalitions are only temporary (e.g. former and
current employees), and that new ownership coalitions (e.g.
managers and privatization funds) are being formed in the
course of secondary privatization.
Data on the ownership stakes of individual groups of
owners are not available from public records and therefore
have been collected with a special questionnaire survey.
Table 2.2 shows average ownership stakes of individual
groups of owners at the completion of primary privatization
for a sample of 183 companies.
Internal owners held majorities in internal companies.
The degree of concentration expressed by the H index (cal-culated
for groups of owners!)44 is the highest in these com-panies;
the fight for control over companies had been tem-
CASE Reports No. 46
Ownership concentration
Lower Higher
Number
of shareholders
Lower Internal External
Higher Public
44 The H index of concentration calculated by groups of owners lies on the interval (100%, 100%/n), n signifying the number of groups. Thus, the
H-5 index lies on the interval (100%, 20%), and H-10 index on the interval (100%, 10%).

24
Table 2.2: Ownership structures at time of completed privatization
Group of owners All companies Public Internal External
State 7.75% 6.78% 2.02% 11.92%
Restitution and pension fund 21.60% 20.49% 21.28% 22.19%
PIF-I (privatization funds) 19.38% 17.65% 14.88% 22.99%
ALL Funds 40.98% 38.14% 36.17% 45.18%
Internal owners – managers of companies 3.86% 1.40% 4.98% 3.95%
Internal owners – current employees 29.23% 21.88% 38.08% 25.80%
Internal owners – former employees 11.05% 7.48% 14.60% 9.89%
ALL Internal 44.14% 30.77% 57.66% 39.65%
Financial investors – domestic 4.80% 22.37% 0.63% 1.61%
Financial investors – foreign 0.03% 0.08% 0.00% 0.02%
ALL Financial 4.83% 22.45% 0.63% 1.64%
Strategic investors – domestic 2.00% 1.86% 3.55% 1.01%
Strategic investors - foreign 0.30% 0.00% 0.00% 0.60%
ALL Strategic 2.30% 1.86% 3.55% 1.61%
TOTAL (all groups) 100.00% 100.00% 100.00% 100.00%
Sum of squares, H-5 37.17% 29.55% 46.49% 37.60%
Sum of squares, H –10 19.21% 18.18% 23.79% 19.46%
CASE Reports No. 46
porarily resolved in favor of internal owners. By taking into
account alliances of owners into homogenous groups, the
concentration of ownership is essentially higher in each
group as shown by data disaggregated by individual types
of owners. As long as the coalition between managers and
former and current employees does not fall apart, it can
be expected that the stake of strategic investors will
increase and the stake of funds will fall in the long run.
The level of concentration by individual groups of
owners is the lowest in public companies, in which none
of the groups acquired 50 percent of shares. Both funds
and internal owners are confronted with the fact that nei-ther
of them will come to control 50 percent of votes in
public companies, as the stake of small financial share-holders
is over 20 percent. Strategic investors can enter
public companies only via public bid for purchase of all
shares under the same conditions. Conflicts among inter-nal
and external owners are less pronounced for that rea-son
alone.
The fight for control is most pronounced in external
companies, where none of the groups of owners holds 50
percent of shares: internal owners on average hold
approx. 40 percent and funds 45 percent. Concentration
of shares by internal owners and funds maintaining con-flicting
interests puts both groups in a comparably conve-nient
initial position to take over control or to block
strategic changes in companies.
Table 2.2 also shows the ownership structure at the
completion of privatization obtained by breaking up the
main 5 groups of owners into a larger number of smaller
groups (i.e. 10). They were established by separating the
ownership of para-state and privatization funds, breaking
up internal owners into managers and former and current
employees and distinguishing between foreign and
domestic strategic investors. Data concerning all compa-nies
in Table 2.2 clearly show the distinguishable main
characteristics of mass privatization in Slovenia:
(1) the stake of strategic investors at the completion of
privatization is minor (stake of 2.3 percent in the col-umn
of all companies);
(2) foreign (financial and strategic) investors were virtu-ally
totally excluded from mass privatization (stake of
0.33 percent in the column of all companies);
(3) the state and para-state funds jointly held a stake of
approx. 30 percent (7.7 percent is held directly by
the state and 21.6 percent indirectly via para-state
funds);
(4) financial investors that acquired shares in privatiza-tion
via public offerings represent an important
group in the small number of companies quoted on
the stock exchange (public companies);
(5) the main groups of owners from privatization on
average gained equal stakes, but internal owners
prevail in internal companies and funds and the state
prevail in external companies;
(6) funds do not represent a homogenous group, as
there are differences between the para-state funds
and privatization funds, which acquired approxi-mately
equal stakes in companies;
(7) internal owners consist of former employees (11.05
percent), current employees (29.23 percent) and
managers of companies (3.86 percent). They act as a

25
homogenous group especially at the beginning of pri-vatization.
It can, however, be expected that former
employees that have acquired considerable stakes
will regard their shares as essentially financial invest-ments.
Managers and employees can also pursue
quite opposite interests in strategic decisions of com-panies.
It can be reasonably anticipated that the coali-tion
of internal owners will not remain very stable in
the long run. Importantly, the role of companies'
managers and their decision-making powers are
greater than their ownership stakes suggest.
CASE Reports No. 46
2.3. Secondary Privatization: Changes
in Ownership Concentration after
Privatization
Through the end of 1999 the number of shareholders
from mass privatization in companies had been on average
fallen by almost 40 percent (at that time, the number of
shareholders was 62.3% of the initial number of owners, as
shown in Table 2.3). As one would expect, the number of
shareholders fell fastest in public companies, as numerous
Table 2.3: Changes in ownership concentration since completed privatization through the end of 1999 in companies privatized as pub-lic
(P), internal (I) and external (E)
Changes in percentage points No. of shareholders
C1 C5 C10 H (completed
privatization = 100)
Public Average 9.4 13.2 14.5 7.8 60.7
St deviation 11.8 5.6 3.8 14.6
Minimum 1.2 4.5 2.5 -0.1
Maximum 59.9 -1.1 -1.3 70.7
Internal Average 14.9 18.4 19.4 12.0 70.5
St deviation 14.9 14.8 12.7 16.4
Minimum 1.6 2.0 5.8 0.6
Maximum 73.8 42.2 27.1 90.1
External Average 10.3 5.8 5.7 9.0 76.5
St deviation 12.4 7.0 5.9 13.7
Minimum -1.1 -9.1 -6.6 -1.8
Maximum 33.0 1.4 1.3 53.1
All Average 11.5 12.5 13.2 9.6 62.3
St deviation 13.0 9.1 7.5 14.9
Minimum 0.6 -0.9 0.6 -0.4
Maximum 55.5 14.1 9.1 71.3
Table 2.4: Ownership concentration at the end of 1999 in companies privatized as public (P), internal (I) and external (E)
C1 C5 C10 H No. of shareholders
Public Average 25.4% 56.3% 64.5% 13.5% 4,190
St deviation 18.6% 17.0% 15.2% 18.0% 10,132
Minimum 5.0% 18.9% 30.1% 1.2% 53
Maximum 97.8% 98.4% 98.7% 95.7% 58,446
Internal Average 32.2% 61.1% 67.2% 17.8% 310
St deviation 19.0% 20.1% 19.3% 17.9% 626
Minimum 9.0% 29.6% 37.6% 2.7% 1
Maximum 100.0% 100.0% 100.0% 100.0% 5,864
External Average 34.5% 67.1% 73.5% 20.2% 368
St deviation 19.3% 17.0% 15.5% 18.6% 566
Minimum 9.3% 31.3% 41.4% 2.8% 1
Maximum 100.0% 100.0% 100.0% 100.0% 4,536
All companies Average 30.7% 61.5% 68.4% 17.2% 1,622
St deviation 19.0% 18.1% 16.7% 18.2% 3,775
Minimum 7.8% 26.6% 36.4% 2.2% 18
Maximum 99.3% 99.5% 99.6% 98.6% 22,949

26
citizens entered those companies at the time of privatization
with the aim of fast sale. Moreover, the sale of shares on the
stock exchange is simpler and more transparent than the
sale of shares of internal and external companies, which are
not quoted on the stock exchange.
Through the end of 1999 ownership concentration had
strengthened in all groups of companies. Changes expressed
in percentage points by individual measures of concentration
are shown in Table 2.3. It is interesting to note that the
increase in ownership concentration was the most intensive
in internal companies. In those companies internal owners as
a group had already acquired majority stakes in primary pri-vatization,
and in the ensuing period the stake of the largest
owner (C1) increased by 14.9 percentage points, the cumu-lative
stake of the 5 largest owners (C5) increased by 18.4
percentage points and the H-index by 12 percentage points.
Table 2.4 reveals that through the end of 1999 the
ownership concentration in internal companies had come
close to the ownership concentration in external compa-nies.
Ownership concentration in public companies had
been lower at the time of completed privatization and
proceeded with a relatively slower pace. It is an interest-ing
finding that the fast decline in the number of share-holders
in the companies privatized by public offerings
was not directly related to fast ownership concentration
in those companies.
Two explanations can be given regarding that finding.
Concentration is either very difficult to accomplish in public
companies or is not needed in such companies. Large share-holders
find it difficult to increase their stakes due to restric-tive
takeover rules that apply to the companies on the stock
exchange. It is also possible that because of the possibility of
selling shares on the stock exchange, the funds as essential-ly
financial investors have no interest in increasing their
stakes. Moreover, there is less need for the entry of strate-gic
owners into public companies. On the other hand, con-centration
rules are simpler in nonpublic companies, and the
concentration of ownership and votes is the only realistic
way of protecting the interests of the owners who by their
nature are essentially financial investors in such companies.
Another interesting finding is reflected in Table 2.4. At
the end of 1999, ownership concentration was relatively
high in all companies from mass privatization. The five
largest owners on average held 61.5 percent of votes in all
companies. The respective stake was the lowest in all
companies privatized as public, but, nevertheless, it
amounted to as much as 56.3 percent of votes even here.
From the point of view of ensuring equal rights to large
and small shareholders, such high concentration rates may
be controversial in the companies that intend to remain
on the stock exchange in the long run. Moreover, in Slove-nia
large shareholders in public companies tend to be
related to the state (directly or indirectly via para-state
funds and via privatization funds managed by state-owned
banks and insurance companies). Therefore, the issue of
large minority shareholders in public companies requires
additional attention.
Figure 2.2 shows the stakes of the largest owner (C1)
in the range from the smallest ones to the largest ones in
three groups of companies (public, internal and external).
The point (x,y) on a given curve signifies that in x percent
of companies the stake of the largest owner is equal to or
smaller than y percent. With increased concentration the
curve rises more rapidly towards the level at which the
value of C1 is equal to 100 percent. It can be observed
from the shifts of the curves in 1999 that concentration
measured by C1 increased in all three categories of com-panies,
but increased the most in internal companies. At
the end of 1999, concentration measured in this way was
significantly higher in companies privatized as internal and
external than in those privatized as public. The figure can
also be read by relating the selected y to the correspond-ing
x. Thus, at the end of 1999 the largest owner had a
majority stake (i.e., y is over 50 percent) in only 4 percent
of public companies and in approx. 20 percent of internal
and external companies. This is further proof that privati-zation
in Slovenia through public offering of shares has not
been, so far, a means of providing for the entry of strategic
investors, normally interested in majority stakes.
Figure 2.3 presents the cumulative stakes of the five
largest owners (C5) in the three groups of companies. The
shifts of curve lines document increases in concentration
that had occurred through the end of 1999. This was the
highest in internal companies. The curve lines for C5 show
that the stake of the five largest owners was also relatively
large in public companies on the stock exchange. For the
reasons explained above, this is negative as far as the pro-tection
of the rights of smaller shareholders is concerned. It
should be emphasized that the measures of concentration
presented here are calculated on the basis of stakes held by
individual shareholders. Considering that internal sharehold-ers
actually behave as a homogenous group in most compa-nies,
the real concentration rates could be seen as even
higher in those companies. Like large para-state funds and
privatization funds, the organized internal owners also rep-resent
a continuous threat to the equal treatment of small
external shareholders in public companies.
2.4. Secondary Privatization:
Changes in Ownership Structure
after Privatization
Table 2.5 presents data on the average changes in own-ership
structure in the sample of 183 public, internal and
CASE Reports No. 46

27
Figure 2.2: The stake of the largest owner (C1) from the smallest to the largest at the time of completed privatization and the end of
1999
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Ownership stake C1 in %
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
CASE Reports No. 46
0%
8%
16%
23%
31%
39%
46%
54%
61%
69%
77%
84%
92%
100%
0%
0%
8%
16%
23%
31%
39%
46%
54%
61%
69%
77%
84%
92%
100%
Public companies
Share of companies in %
External companies
Privatization
End of 1999
Privatization
End of 1999
Privatization
End of 1999
Internal companies
0%
8%
16%
23%
31%
39%
46%
54%
61%
69%
77%
84%
92%
100%

28
Figure 2.3: The stakes of five largest owners (C5) from the smallest to the largest at time of completed privatization and the end of
1999
Privatization
End of 1999
Privatization
End of 1999
CASE Reports No. 46
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
Ownership stake C5 in % Ownership stake C5 in % Ownership stake C5 in %
Privatization
End of 1999
Public companies - C5
Internal companies - C5
0%
8%
16%
23%
31%
39%
46%
54%
61%
69%
77%
84%
92%
100%
External companies - C5
0%
8%
16%
23%
31%
39%
46%
54%
61%
69%
77%
84%
92%
100%
0%
8%
16%
23%
31%
39%
46%
54%
61%
69%
77%
84%
92%
100%

Table 2.5: Changes in ownership structures from completion of privatization to end of 1999 (%)
Group of owners All companies Public Internal External
State -4.69 -3.98 -1.47 -7.09
Restitution and pension funds -9.02 -6.49 -9.16 -9.78
PIF-I (privatization funds -2.13 1.37 -0.31 -4.54
ALL Funds -11.15 -5.13 -9.47 -14.32
Internal owners – managers of companies 5.17 1.45 4.09 7.16
Internal owners – current employees -2.19 -6.54 -4.52 0.85
Internal owners – former employees 0.35 -1.69 -1.39 2.21
ALL Internal 3.33 -6.78 -1.82 10.22
Financial investors – domestic 3.73 1.71 3.92 4.29
Financial investors - foreign 0.15 0.06 0.30 0.09
ALL Financial 3.88 1.77 4.22 4.38
Strategic investors – domestic 7.90 13.68 8.01 5.85
Strategic investors – foreign 0.72 0.44 0.52 0.96
ALL Strategic 8.62 14.12 8.53 6.81
AAD – 5 6.33 6.36 5.10 8.56
AAD – 10 3.60 3.74 3.37 4.28
45 Similar trends were observed in some earlier studies by Bešter (1999), Simoneti, Rems and Rojec (1999) and Gregoric, Prašnikar and Ribnikar
29
external companies. The table will be initially interpreted by
groups of owners (i.e., by rows), and then by groups of
companies (i.e., by columns).
The table presents in bold print the changes in owner-ship
structures by the 5 main ownership groups on average:
the state and funds are decreasing their stakes, while inter-nal,
financial and strategic owners are increasing theirs45.
The stakes of funds decreased the most (-11.5 percent
points), especially in companies that are not quoted on the
stock exchange (internal: -9.47 percent points; external:
-14.3 percent points). The largest increases in stakes are
recorded for strategic owners (+8.62 percent points).
Internal owners are on average increasing their stakes
(+3.3 percent points), albeit with large differences among
groups of companies. The stake of internal owners is falling
in public companies (-6.78 percent points), which can be
explained by their acceptance of the fact that acquisition of
majority stakes is unattainable due to the size of companies,
as well as by the ease of selling shares on the stock
exchange. The increase in the stake of internal owners is the
most intensive in external companies (+10.22 percent
points), but the fight for acquisition of majority stakes still
goes on.
Internal owners are reducing their stake in internal com-panies,
although on average keeping the majority. In con-trast
to expectations, the stake of financial investors in pub-lic
companies quoted on stock exchange is not expanded.
Financial investors enter internal and external companies
(approx. + 4 percent points). This is probably related to
their struggle to gain control over companies and to tem-porary
buyouts of shares via brokers by the groups of share-holders
attempting to acquire majority stakes.
Table 2.5 also shows changes in ownership structures
disaggregated by 10 groups of owners, thereby giving an
insight into the differences in behavior within broader
groups of owners. The funds are evidently behaving as sell-ers
of shares from privatization, notably para-state funds
(-9.02 percent points), which are forced to divest parts of
their portfolios to meet their current obligations. At the
same time, privatization funds are adjusting their portfolios
by reinvesting proceeds from share sales into the shares of
other companies from privatization.
The role of managers is strengthened (+5.17 percent
points) within the group of internal owners, while the stake
of employees is reduced (-2.19 percent points). The man-agers'
stakes are on the rise with the fastest pace in exter-nal
companies (+7.16 percent points) and with a relatively
slow pace in public companies (+1.45 percent points). The
stakes of former employees are surprisingly stable. It may
be that former employees have limited possibilities to sell
shares in nonpublic companies or that in Slovenia the
retired continue feeling associated to the companies in
which they were once employed.
Practically all financial investors that expanded their
stakes were domestic. The same holds true for strategic
investors accumulating their stakes in privatized companies.
Primary mass privatization precluded participation of strate-gic
investors, as well as of foreigners. By the end of 1999
secondary privatization had opened up the way for the
entry of the first strategic investors, who were almost
(2000).
CASE Reports No. 46
^

30
exclusively of domestic origin. More intensive entry of for-eign
financial and strategic investors to privatized companies
can be expected only when direct and indirect restrictions
on foreign investments are abolished in the course of acces-sion
to the EU.
To demonstrate the intensity of changes in ownership
structure by groups of companies, average absolute dif-ferences
(AAD) have been calculated as average differ-ences
in structural stakes at the time of completed priva-tization
and at the end of 1999. For example, AAD-5 was
calculated on the basis of structural stakes for 5 groups of
owners46. Its value of 6.33 for all companies signifies that
structural stakes of individual groups of owners changed
on average by 6.33 percentage points (up or down). AAD-
10 was calculated on the basis of structural stakes for 10
groups of owners46. Table 2.6 reveals that AAD-5 and
AAD-10 are the highest for the group of companies priva-tized
as external companies. It has already been argued
that in this group, the initial ownership structure was the
most problematic and the need for ownership changes
the most pressing. Data indicate that changes in owner-ship
structure do actually take place with the fastest pace
precisely in that group. The analysis of performance of
companies in this period should reveal whether those
changes are sufficiently fast and effective.
2.5. Post-privatization Trasformation
Matrix of Companies
Companies in the public, internal or external groups at
the time of privatization shifted to other groups as the
result of changes in ownership structures in the post-pri-vatization
period. Table 2.6 shows shifts of companies
among the groups for a sample of 426 companies from
mass privatization for which data on initial and final own-ership
structures47 are available. Companies on the diago-nal
in the shaded area are those which remained in the
same group. Companies outside the diagonal are those in
which major changes in ownership structures occurred
which led to their shift to other groups. Between 1995
and 1999 the incumbent owners from mass privatization
played the role of owners in the companies on the diago-nal
and the role of sellers to other owners in the compa-nies
outside the diagonal. The transformation matrix is
supplemented by the number of companies, which did not
exist any more at the end of 1999 as the result of liquida-tion
or transformation by mergers.
Public companies were already performing relatively
well at the time of completed privatization, and therefore
liquidations involved only internal (14) and external (27)
companies. Five external companies ceased existing due to
mergers, and two of them were re-nationalized. Apart
from 5 external companies there were practically no shifts
to foreign companies, i.e. companies controlled by foreign
strategic investors. There were, however, relatively fre-quent
shifts to companies owned by domestic strategic
owners. It is interesting to note that domestic strategic
investors are acquiring the largest ownership stakes in all
three groups of companies from privatization, in public,
internal and external companies. A few external compa-nies
(9) and even fewer internal ones (4) have opted for
quotation on the stock exchange, thereby becoming pub-lic
companies. Opposite cases (changing public joint stock
companies into internal or external companies) were not
recorded in the sample during the observed period. Com-panies
privatized as public companies largely stayed on as
public, whereas the dynamics of shifting of internal and
external companies to other groups was quite fast48.
46 The AAD-5 and AAD-10 are not directly comparable as the indicator AAD lies on the interval (0%, 200%/n), which depends on the number of
CASE Reports No. 46
groups of owners (n).
47 I.e. at the completion of privatization by individual companies irrespective of specific years (initial) and at the end of 1999 (final).
48 A large number of internal companies became external companies. Those shifts were partly due to the methodological reasons. Ownership data
were obtained from the Clearing and Depository Company (CDC), which at the end of 1999 did not dispose of ownership data on all privatized joint
stock companies. It is very likely that the missing companies mostly involved the companies still controlled by internal owners that had no interest in
entering the shareholders' books onto the central share register. The CDD does not include smaller companies established as limited liability compa-nies
and mostly controlled by internal owners throughout the observed period. Moreover, the 'internal to internal cell' in the transformation matrix is
underestimated due to the establishment of proxy companies by insiders. Those are established by internal owners who invest their shares in a special
legal entity (similar to the American ESOP) that manages the created block of shares on their behalf. By formal criteria of this study, the proxy compa-ny
should be treated as a domestic strategic owner, since its shareholding is larger than 10 percent. The respective companies should have been appro-priately
treated as internal companies as they involve a stable form of organizing internal owners. The matrix gives corrections for proxy companies in
parentheses. By adding proxy companies the number of internal companies is enlarged by 13, and in consequence the number of external companies
is reduced by 6 and the number of enterprises with dominant domestic strategic owner is reduced by 7. Due to incomplete ownership data maintained
by the CDC, the transformation matrix does not enable, so far, a complete presentation of ownership transformation for all privatized companies. Nev-ertheless,
for the sample of 426 companies it provides a reliable approximation of the distribution of those companies that have changed their type in
secondary privatization (i.e., the cells outside the diagonal) and of those ones that have not done so (i.e. the cells on the diagonal). This distribution
could serve as a basis for generating dummy variables in empirical analysis of the relationship between the change in performance and the change in
ownership type.

31
Table 2.6: Transformation matrix from completion of privatization to the end of 1999
Table 2.7 presents the distribution by initial and final
types of the companies included in the transformation
matrix. The rows, which add up to 100 percent, show
changes in ownership types of companies privatized as pub-lic,
internal or external. For example, the smallest changes
in that respect can be clearly observed for public compa-nies,
as 80 percent of them remained in the same category.
The columns that add up to 100 percent show the break-down
of privatization models for companies in each owner-ship
category at the end of 1999 (i.e., what percentage of
the companies in each category in 1999 were in each of the
various categories at the time of privatization). Thus, for
example, all foreign strategic companies and almost 50 per-cent
of domestic strategic companies originated from com-panies
privatized as external.
2.6. Conclusions
In Part II, we examined the data on evolution of owner-ship
structures and concentration after mass privatization in
Slovenia. Companies are grouped according to the prevail-ing
privatization model into public, internal and external.
Public companies are traded on the stock exchange; in non-public
internal companies internal owners dominate over
external owners (mostly privatization funds and para-state
funds), while in nonpublic external companies the situation
is reversed. Internal and external companies are not traded
on the stock exchange. Therefore, the consolidation of
ownership in these two groups is less transparent than in
public ones.
Data reveal that since the completion of privatization by
the end of 1999, almost 40% of initial shareholders have
already exited companies privatized through mass privatiza-tion.
Ownership concentration was strengthened in all
groups of companies, but most intensively in internal com-panies.
At the end of 1999 ownership concentration is rela-tively
high in all groups of companies: the five largest own-ers
on average hold 61.5% percent of votes in companies
from mass privatization. It seems that the principal-agent
relationship between managers and shareholders is less of a
problem than the conflict between large and small share-holders.
Moreover, in Slovenia large shareholders include
para-state funds and privatization funds, both lacking the
ability and motivation for proper corporate governance. On
the other hand, many small shareholders are company insid-ers
who act as a homogeneous group in relation to external
owners. It might well be that with concentration of owner-ship
in the 1994–1999 period, the problem of managerial
discretion was reduced, while the conflict of interest
between internal and external owners has become worse.
CASE Reports No. 46
Registered in CDD by the end of 1999
Type of
company
Public Internal External Strategic
domestic
Strategic
foreign
State Total in
CDD
Liquidated Merged All
Public 65 0 0 14 0 1 80 80
Internal 4 (+8) 49 (-4) 42 (-4) 28 0 0 123 14 137
External 9 (+5) 39 (-2) 128 (-3) 40 5 2 223 27 5 255
At time of
completed
privatization
All 78 (+13) 88 (-6) 170 (-7) 82 5 3 426 41 5 472
Table 2.7: Transformation matrix from completion of privatization to the end of 1999 in percentage points; n=426
Type of
company
domestic
Strategic
foreign
State Total in CDD
Public 81% 0% 0% 18% 0% 1% 100%
Internal 3% 40% 34% 23% 0% 0% 100%
External 4% 17% 57% 18% 2% 1% 100%
At time of completed
privatization
Total 18% 21% 40% 19% 1% 1% 100%
Type of
company
domestic
Strategic
foreign
State Total in CDD
Public 83% 0% 0% 17% 0% 33% 19%
Internal 5% 56% 25% 34% 0% 0% 29%
External 12% 44% 75% 49% 100% 67% 52%
At time of completed
privatization
Total 100% 100% 100% 100% 100% 100% 100%

32
Small shareholders, the state and para-state funds are
reducing their ownership stakes in the companies from
mass privatization, while managers and strategic investors
are increasing them. It is observed that both groups are
accumulating their shares more intensively in companies not
traded on the stock exchange. Therefore, transactions are
made on informal markets with limited competition and
transparency. In addition, new strategic investors appearing
through the end of 1999 were almost exclusively of domes-tic
origin. Initial privatization, with free distribution of shares
and limited foreign and strategic investors, is followed by
non-transparent domestic consolidation of ownership,
where domestic companies, managers and funds are the key
players. A more intensive entry of foreign portfolio and
strategic investors in privatized companies can be expected
only later, in the course of Slovenia's accession to the EU.
On the basis of available data, the overall assessment of the
post-privatization ownership consolidation in Slovenia is that
the major problems are rather the quality and transparency
of the process than its speed.
CASE Reports No. 46

33
Part III.
Secondary Privatization in Slovenia:
Company Performance and Ownership Changes after Mass
Privatization (1995–99)
Marko Simoneti, Joe P. Damijan, Boris Majcen and Matija Rojec49
3.1. Introduction
In the case of mass privatization it is expected that
many 'true' owners will enter companies only in sec-ondary
privatization. Hence, initial owners from privatiza-tion
have two roles: some will continue to be owners,
others are only intermediaries of privatization that should
help companies to find 'true' owners that in turn should
take care of restructuring of companies. Both roles are
important in mass privatization. Therefore, it will be
attempted to empirically verify for Slovenia how effec-tively
individual groups of owners from mass privatization
– insiders, funds and small shareholders – perform their
roles of owner in the post-privatization period or
agent/seller in the secondary privatization.
The difference between the owner effect and agent/sell-er
effect in mass privatization is not well understood in the
economic literature and economic policies of countries in
transition. Privatization models were adopted in those
countries on the basis of political acceptability and the need
for fast privatization of the entire enterprise sector. Initial
ownership structures were intended to be transitional, with
optimal ownership structures emerging gradually as a result
of secondary transactions. In this sense the success of mass
privatization can be judged mainly by the agent/seller effect.
Thus, the recognition that privatization funds are not good
owners should not be surprising, as ownership was not their
intended role. It is more important whether privatization
funds are good and fast sellers.
A traditional approach to examining the ownership
effects or relations between ownership type and perfor-mance
of companies prevails in the literature. Recent exten-sive
surveys of empirical studies on corporate restructuring
after privatization for most of the countries in transition can
be found in Djankov and Murrell (2000) or Havrylyshyn and
McGettingen (1999). There is also a growing body of empir-ical
work in Slovenia that studies the effects of privatization
models and emerging ownership and control structures on
corporate performance. The main findings are published in
the collection of papers edited by Prašnikar (1999, 2000),
Borak (1995) and Simoneti (2000). We will argue that the
success of mass privatization should be judged by other,
non-traditional, criteria as well. Mass privatization is consid-ered
successful if temporary owners sell fast and successful-ly
to other owners (in Slovenia, primarily to strategic
investors). The success of secondary sales is, therefore, not
to be evaluated by the achieved price but by how success-fully
companies perform after the sale to new owners. Pos-itive
effects of mass privatization are thus not shown by
companies remaining under control of initial owners but by
the companies that have already gone through secondary
privatization.
3.2. Methodology and Data
Data from financial accounts in the period 1995–1999
are available for 426 companies from mass privatization in
Slovenia and allow us to perform analyses of owner effects
and agent/seller effects. Companies are grouped according
to the prevailing privatization model into public, internal and
external, as defined earlier in Part I.
The transformation matrix presented in Section 2.5 was
constructed by taking into account the initial and final cate-gorization
of companies. It provides for distribution of 426
companies privatized as public (P), internal (I) and external
(E) into the companies that remained in the same category
(PP, II, EE) and the companies outside the diagonal that
changed their ownership type in the course of secondary
privatization (PS, IS, ES; the first letter refers to the initial
ownership type):
P = PP + PS : (80 = 65 + 15)
I = II + IS : (123 = 42 + 81)
E = EE + ES :(223 = 128 + 95)
49 JoJe P. Damijan is from the Faculty of Economics, University of Ljubljana and IER, Ljubljana; Boris Majcen is from IER, Ljubljana.
CASE Reports No. 46

34
Legend:
P = Public; PP = Public/Public; PS = Public/Secondary
I = Internal; II = Internal/Internal; IS = Internal/Sec-ondary
E = External; EE = External/External; ES = External/Sec-ondary
The changes in performance of P, I and E companies
indicate the effectiveness of individual privatization mod-els.
Nevertheless, both the owner effect and the
agent/seller effect are present here due to changes in
ownership structures and shifts to other ownership
groups of companies. Changes in performance of PP, II
and EE companies reflect primarily the owner effect,
whereas changes in performance of PS, IS and ES reflect
primarily the agent/seller effect.
The first part of the analysis is performed at the aggre-gate
level, comparing the weighted mean values of per-formance
indicators of individual groups of companies in
the initial and final year. The results of such analyses are
most strongly affected by the events occurring in large
companies, which is interesting from the point of view of
current economic policy but may be problematic from the
methodological one. In aggregate analyses it is not possi-ble
to isolate the numerous factors besides the ownership
structure that affect the performance of companies.
Moreover, the possibilities for exclusion of the effect of
initial differences in performance (the problem of selec-tion
bias) are limited. Therefore, the aggregate analyses
basically serve to formulate the main hypotheses on
owner effects and agent/seller effects for individual groups
of companies. Those hypotheses were tested with econo-metric
methods in the second part using panel data for
individual companies.
For the performance of companies we used indicators
reflecting economic efficiency and indicators reflecting
financial performance. We attempted to investigate sepa-rately
how change in ownership affects the generation of
output and its distribution among the key participants. Is
the change in economic efficiency reflected also in the
change of financial performance of companies? In aggre-gate
analyses the economic efficiency was analyzed via the
growth in labor force, sales and assets, and especially
through the growth in productivity, whereas the financial
performance was analyzed through the share of EBIT
(operating profit), EBITDA (operating profit increased by
depreciation), and net profits in sale revenues. EBITDA
reflects the operating cash flows which are at the dispos-al
of companies' investors (creditors and owners) after the
payment of material and labor costs. In econometric
analyses of the panel data, economic efficiency was ana-lyzed
via the growth of total factor productivity (TFP), and
the financial performance was evaluated with the same
indicators as in the aggregate analysis.
3.3. Aggregate Analysis and Main
Hypotheses
The main problem in our aggregate analyses concerns
the exclusion of initial differences in performance among the
companies privatized as public, internal and external. The
most straightforward solution that at least partially excludes
the influence of selection bias is not to focus the analysis
directly on the values of indicators but on the changes in
their values. Thus the tables that follow give only changes in
weighted mean values of indicators in the period between
the initial year (1995) and the final year (1999) for all groups
of companies.
3.3.1. The Privatization Model Effect
Table 3.1 documents changes in average indicators of
performance and operation of companies grouped by ini-tial
ownership structure at privatization – public (P), inter-nal
(I), or external (E). Here, the presentation of individual
privatization models' effects does not separate the owner
Table 3.1: Changes in indicators of companies privatized as public (P), internal (N) and external (E), 1995–1999, n = 426
Changes in average indicators of operation Public Internal External
Index 1999/1995 (1995=100)
Number of employees 93.4 92.7 94.8
Assets in 000 SIT 106.2 107.8 110.8
Sales in 000 SIT 115.1 105.6 107.2
Assets per employee in 000 SIT 113.7 116.3 116.9
Sales to assets 108.4 98.0 96.8
Sales per employee in 000 SIT 123.2 113.9 113.1
Differences in percentage points
EBITDA to sales 1.7 0.7 0.8
EBIT to sales 2.2 0.0 -0.5
Net profit to sales 6.1 -0.1 0.7
CASE Reports No. 46

35
effect from the agent/seller effect. Labor force reductions
and expansion of assets occurred in all groups. Sales
increased by 15 percent in public companies, by only 5.6
percent in internal companies and by 7.2 percent in exter-nal
companies. Labor productivity (measured as sales per
employee) also increased most in public companies
(+23.2 percent) and substantially less in internal and
external companies (+13 percent). Asset productivity
(measured as the ratio of sales to assets) increased only in
companies privatized as public. The financial indicators of
the greatest interest for true corporate investors (EBIT-DA,
EBIT, and the ratio of net profit to sales) also show
positive changes only in companies privatized as public. It
is a well known fact that the best performing companies
went public at the time of privatization50. It is shown here
that those companies as a group also show the greatest
progress in economic and financial performance. We go on
to attempt to establish whether that progress was due to
good owners or good agent/sellers.
3.3.2. The owner effect
Table 3.2 documents changes in the group of companies
that at the beginning and at the end of observed period
belonged to the same type of companies: PP, II, EE. The
owner effect is observed in these groups of companies. Sales
expanded most in the PP companies, while employment was
reduced in all groups. Labor productivity increased signifi-cantly
more in PP companies than in the II and EE companies.
According to the indicators of changes in economic efficien-cy,
the PP companies were thus doing better than the II and
EE companies. The PP companies also had significantly better
financial performance. The table allows us to conclude that
shareholders of public companies are good long-term own-ers,
while internal owners and funds in non-public companies
follow with a large lag in that respect.
3.3.3.The Agent/Seller Effect (Secondary Privati-zation)
Table 3.2: Changes in indicators of companies that operated as public (PP), internal (II) or external (EE) in the period 1995–1999,
n = 242
50 See the selection bias analysis in the next section.
CASE Reports No. 46
Index 1999/1995 (1995=100)
Assets in 000 SIT 106.6 102.5 104.0
Sales in 000 SIT 119.7 102.2 107.3
EBITDA to sales 2.1 1.1 -0.2
EBIT to sales 2.7 0.7 -2.1
Net profit to sales 7.5 -0.8 0.3
Table 3.3: Changes in indicators of companies that changed ownership type between 1995 and 1999 in secondary privatization: PS, IS
and ES companies, n=184
Changes in average indicators of performance Public Internal External
Index 1999/1995 (1995=100)
Assets in 000 SIT 103.6 110.3 118.0
Sales in 000 SIT 92.6 107.3 107.1
EBITDA to sales -0.2 0.4 2.1
EBIT to sales 0.4 -0.5 1.8
Net profit to sales 0.0 0.3 1.3

36
Table 3.4: Changes in indicators of companies that were acquired by strategic investors between and 1995 1999 in secondary privati-zation,
n=87
Table 3.3 gives data for the groups of companies in
which individual companies shifted to other categories
(PS, IS, ES) by the end of 1999 as the result of significant
ownership changes in secondary privatization. Signs of sig-nificant
growth of sales and assets are observed especial-ly
in companies sold by internal owners and by external
owners, i.e. funds. Those two groups of companies also
performed well according to the indicators of labor pro-ductivity
growth. The IS and ES companies differed with
respect to the indicators of financial performance. The ES
companies on average documented larger progress in
EBITDA, EBIT and net profit to sales than the IS compa-nies.
On the other hand, the PS companies did not mani-fest
any positive shifts with respect to the indicators of
economic efficiency and financial performance. The
overview of changes in average indicators suggests that
the best sellers are the owners of companies privatized as
external.
Therefore, on the basis of these data the conclusion
could be that para-state funds and privatization funds are
relatively good agents/sellers and are followed by internal
owners. The same findings have been derived from the
analyses of sales to strategic owners only (see Table 3.4).
The IS and ES companies stand out in terms of productivity
increases and the ES companies especially in terms of
improved financial performance.
The aggregate overview of average indicators by individ-ual
groups of companies presented in Tables 3.1 to 3.4 allow
us to formulate the following main hypotheses regarding
mass privatization in Slovenia:
(1) Of the privatization models the public privatization
was relatively the most successful. Its success is reflect-ed
in growth of both economic efficiency and financial
performance of companies.
(2) The positive owner effect on productivity and financial
performance is especially strong in companies priva-tized
as public and is weak in the companies that
underwent internal or external privatization.
(3) The positive agent/seller effect on performance is rel-atively
strongest in companies privatized as external
and internal.
(4) The success of public privatization thus originates
essentially from the owner effect, which prevailed over
the modest effect of changed ownership. In this priva-tization
the initial choice was already fairly selective
and, for the most part, appropriate owners already
emerged in primary privatization.
(5) The poor results from internal and external privatiza-tion
stem from the prevalence of modest owner effects
over positive agent/seller effects. Here the initial selec-tion
of companies was less selective and other owners
are required in secondary privatization. Secondary pri-vatization
is therefore urgent and is moving in the right
direction, but not fast enough. Due to blockages and
numerous institutional barriers51, the funds and internal
owners have accepted to play a role of long-term own-ers
but perform it poorly.
3.4. Empirical Testing of Hypotheses
The hypotheses that concern strategic issues of key
importance for directing the secondary privatization in Slove-nia
have been formulated based on the comparison of aver-age
values of various performance indicators for public, inter-nal
and external companies. These hypotheses appear logical
and are in line with developments in a few large and well-known
Slovenian companies. Next, they are tested by econo-metric
methods employing panel data on operation of 426
companies between 1995–99. All companies are grouped in
one of the main categories: PP, PS, II, IS, EE and ES.
CASE Reports No. 46
Index 1999/1995
Assets in 000 SIT 101.7 109.6 107.5
Sales in 000 SIT 91.3 96.6 103.8
EBITDA to sales -0.1 0.9 1.3
EBIT to sales 0.7 -0.3 0.7
Net profit to sales 0.1 1.0 1.1
51 These barriers have been discussed extensively above.

37
Table 3.5: Initial indicators of companies privatized as public (P), internal (I) and external (E), 1995, n = 426
Average indicators of operation of companies 1995
3.4.1. Selection Bias Problem
The analysis has to take into account the fact that the ini-tial
breakdown of companies into groups of public, internal
and external companies is not independent of the initial dif-ferences
in companies' performances (i.e. the so-called
selection bias). At the time of selection of privatization
models, the performance of the companies influenced the
ownership structure and not vice versa. There was a strong
bias in selection of privatization methods in Slovenia due to
the principle of autonomy of companies in the selection of
privatization models.
Table 3.5 presents the breakdown of a sample of com-panies
participating in a survey. The sample included 80
companies privatized as public, 123 companies privatized as
internal and 223 companies privatized as external. The basic
hypothesis is that internal ownership depends on the finan-cial
capability of employees to exercise their rights to buy
out majority stakes and on their willingness to engage in
such buyouts (determined by the companies' performance).
Public companies are by far the largest in terms of labor
force, sales and assets. Internal owners could not acquire
majority stakes because of the large size of those compa-nies.
There were also obvious differences in capital intensi-ty.
Public companies disposed of the largest assets per
employee, followed immediately by external companies,
with internal companies bringing up the rear. The financial
capacity of internal owners to acquire large stakes in com-panies
was also dependent on the companies' indebtedness,
which was the largest in internal companies and the small-est
in public companies. The fact that the ratio of value
added to assets is significantly larger in internal companies
than in external and public companies indicates the capacity
of internal owners to buy out companies from the
resources generated by respective companies. According to
the performance indicators (EBITDA, EBIT and net profit to
sales) internal owners acquired majorities in average per-forming
companies, while the best performing ones were
quoted on the stock exchange and the poorly performing
ones – not suitable for public offerings to small shareholders
– were privatized as external companies. Detailed econo-metric
analysis of the selection mechanism has further con-firmed
this analysis of mean values for individual groups of
companies.
The evaluation of the selection mechanism in primary
privatization was performed with the Heckman (1979) two-step
method. In the first phase, a multinominal logit model
(see more in Greene, 1997) was used to evaluate the
optional multiple selection of companies among the three
dominant privatization models (public, internal and exter-nal)
on the basis of their indicators in 1994. In the second
phase of evaluation, the Amemiya (1984) procedure served
to calculate appropriate correction factors (the so called
'inverse Mills ratios', i.e. lambda) on the basis of the proba-bility
(likelihood) of selection of a given privatization model.
In further evaluation of the effectiveness of the individual
privatization model and of owners, the bias effects due to
the selected privatization model were eliminated by inclu-sion
of these correction factors in order to obtain unbiased
estimates of regression coefficients. The selection of one of
the three models of privatization in primary privatization
was not random, but depended on the companies' pre-pri-vatization
performance. Any evaluation of individual models
of privatization is therefore biased, if the non-random selec-
CASE Reports No. 46
Public Internal External
Number of employees 448 287 234
Assets in 000 SIT 9,766,208 1,879,742 2,897,793
Sales in 000 SIT 6,917,831 2,197,563 2,797,208
Value added in 000 SIT 1,519,486 683,861 605,286
Asset per employee in 000 SIT 31,220 8,779 14,841
Sales per employee in 000 SIT 13,214 10,331 12,557
Labor cost per employee in 000 SIT 2,954 2,630 2,781
Share of capital in assets 71.3% 60.8% 65.4%
Share of export in sales 27.7% 24.1% 21.5%
Value added per employee 2.933 2.736 2.740
Value added to assets 20.5% 42.7% 27.9%
Labor cost to sales 28.2% 35.9% 31.4%
Value added to sales 26.7% 35.9% 29.7%
EBITDA to sales 6.5% 4.1% 3.8%
EBIT to sales -1.7% -0.5% -1.9%
Net profit to sales 0.8% 0.5% -0.1%
Number of companies 80 123 223

38
Table 3.6: Evaluation of the selection mechanism in primary privatization by multinomial logit model (base group=internal privatiza-tion;
data for 1994)
Variable Coef. z-stat.
Parameters of selection of public privatization
a **6.51E-07 4.099
l *-0.003 -2.245
a_l *5.68E-05 2.174
c_a **0.034 2.882
ebitda_s *-0.054 -2.462
s_l -2.65E-05 -1.297
ex_s 0.003 0.348
Cons *-2.783 -2.274
Sector dummies Yes
Parameters of selection of external privatization
a **5.78E-07 3.67
l **-0.003 -2.749
a_l 4.27E-05 1.68
c_a *0.018 2.052
ebitda_s **-0.054 -2.963
s_l -2.1E-05 -1.497
ex_s *-0.016 -2.132
Cons -1.861 -1.773
Sector dummies Yes
Number of obs 391
LR chi2(60) 186.45
Prob chi2 0.000
Pseudo R2 0.233
** and * indicate statistical significance of coefficients at 1 and 5 percent respectively; Dependent variable: ownership (ownership = 1, 2, 3)
tion mechanism for the three privatization models is not
explicitly taken into account52.
The likelihood of the selection of public privatization
(see Table 3.6) is significantly related in a positive way to
assets (a), capital intensity (a_l) and share of capital in assets
(c_a), whereas the relationship with employment (l) and,
interestingly, with performance (EBITDA-s) is negative. Pre-privatization
characteristics are similarly related to the like-lihood
of the selection of external privatization, except for
the significant negative relation to export orientation (ex_s),
which is considered a good proxy variable for the long-term
perspective of the company.
On the other hand, these results signify that the likeli-hood
of the selection of the internal privatization model is
negatively related to the size of assets and capital intensity
and positively to the number of employees, performance of
company (ebitda_s, ex_s) and also to indebtedness. In gen-eral,
indebtedness is not problematic in internal companies
that perform relatively successfully. We believe higher
indebtedness plays a role of financial leverage that helps
internal owners to gain the controlling stakes with relatively
small resources. In-depth analysis of selection mechanisms
in primary privatization thus shows that internal owners
behaved quite rationally in selection of the privatization
model, taking into account their financial capabilities to
acquire control, as well as performance of the companies.
3.4.2. Economic Efficiency
To study changes in economic efficiency, a total factor
productivity growth model was used. The evaluation of the
marginal production function was performed by regressing
the changes in employed capital and labor on changes in
52 Only a few of the earliest empirical studies of the effects of privatization on company performance in Slovenia have explicitly taken the selection
CASE Reports No. 46
bias problem into account: Dubey and Vodopivec (1995) and Smith et al. (1997).

39
Table 3.7: Economic efficiency – TFP growth: Selection bias and the privatization model effects (the combined effect of owners
and sellers)
production with additional dummy variables for different
ownership groups of companies and additional time and
sector dummies. The model using annual data for the peri-od
of 1995–1999 is estimated on the differences of loga-rithms
(the estimated coefficients thus represent growth
rates). Before turning to the estimation results, different
appropriate econometric techniques for estimating the
models should be addressed. As we are dealing with panel
data OLS estimates may give biased and inconsistent esti-mates
of the consecutive models. These models may suffer
from probable correlation between the productivity effects
and the output variable. As there are no suitable firm-spe-cific
instruments to control for this problem, one should use
one of the two panel data techniques (random or fixed
effects) that do explicitly take firm-specific effects into
account53. However, neither of these two techniques,
though preferable to OLS, is absolutely accurate for the
purposes of our estimations. The fixed effects model (FEM)
assumes constant TFP growth over time for a single firm. In
the present context, this is an inappropriate assumption, as
the aim is to examine the impact of different factors on
changes in TFP growth. On the other hand, the major dis-advantage
of the random effects model (REM) is the
assumption that changes in TFP growth at the firm level are
random and only reflected in the error term, i.e. uncorre-lated
over time. We perform estimations using the OLS,
REM and FEM techniques. The Hausman (1978) test shows
that FEM provides a better specification of our models than
REM. However, as argued above, FEM is not a proper spec-ification
in our case due to the assumption of the firm's con-stant
TFP growth over time. In addition, as the consecutive
models are estimated in first differences, fixed effects are
leveled out. On the other hand, due to estimating models in
first differences, the Hausman test found no significant dif-ferences
between OLS and REM estimations. We therefore
report only OLS estimations that provide biased, though
more efficient estimations than REM and FEM specifica-tions.
The first model in Table 3.7 does not take into account
the possible biases of parameters that may be due to the ini-tial
selection bias of sample. In this case variables for both
internal and external privatization are insignificant.
The second model in Table 3.7 includes correction fac-tors
for the initial selection bias of the sample. Both cor-rection
parameters are significant, meaning that the selec-tion
bias has significant effects on the parameters of the
model. With elimination of that bias both regression coef-ficients
for internal and external privatization become sig-nificant.
The estimated values of the coefficients allow us
to conclude that the growth of TFP is typically higher in
public privatization than in internal and external privatiza-tion.
In other words, in the period between 1995–1999
companies privatized internally and externally show an
average annual growth rate which 15 and 19 percent
lower, respectively, than the respective rate of companies
privatized publicly.
These results thus confirm our hypotheses concerning
mass privatization in Slovenia formulated on the basis of
aggregate data: public privatization is the best from the
point of view of the economic efficiency of companies. In
the next step we attempt to investigate the relative impor-tance
of owner effects and agent/seller effects.
53 For discussion on use of different panel data techniques refer to Hsiao (1986), Baltagi (1995), and Greene (2000).
CASE Reports No. 46
without correction with correction
Coef. t-stat. Coef. t-stat.
Assets **0.269 9.667 **0.296 10.641
Labor **0.682 33.009 **0.669 32.765
I 0.000 -0.018 *-0.149 -2.321
E -0.012 -1.084 **-0.186 -2.565
lamp2 *0.100 2.344
lamp3 *0.112 2.469
Cons. *0.043 2.333 **0.239 3.369
Time dummies Yes yes
Sector dummies Yes yes
Adj.R2 0.489 0.508
F-stat. 53.32 51.33
Observations 1564 1564
** and * indicate statistical significance of coefficients at 1 and 5 per cent respectively
Dependent variable: lp_d (growth of production); reference = P (public companies)

40
The first model in Table 3.8 compares TFP growth in
companies that have not changed ownership (i.e. diagonal
companies) in secondary privatization to that in companies
that have (off-diagonal companies). The insignificant esti-mated
regression coefficient for diagonal companies show
that TFP growth in diagonal companies in general is not dif-ferent
from off-diagonal public companies; hence, differ-ences
between owner effects and seller/agent effects are
not significant. This means that, at this level of ownership
aggregation, secondary privatization in itself (without distin-guishing
among initial types of ownership) has no additional
positive effect on the economic efficiency of companies.
The second model in Table 3.8 evaluates the owner and
agent/seller effects in secondary privatization on the basis of
more disaggregated ownership, taking diagonal public com-panies
as the reference. The evaluation of the model (after
taking into account the selection bias) again shows that diag-onal
internal and external companies grow at a typically
slower rate than diagonal public companies, meaning that
owners of public companies are better owners than the
owners of internal and external companies. Expressed in fig-ures,
we found that among the companies that did not
undergo secondary privatization in the period between
1995–1999, internal and external companies recorded aver-age
annual growth rates which were lower by 14 percent
and 18 percent, respectively, than in the case of public com-panies.
On the other hand, the estimates of the parameters
show that there is no significant difference in the economic
efficiency of privatized companies when we take into
account the fact that owner effects play a role in diagonal
companies and agent/seller effects play a role in off-diago-nal
companies. This is demonstrated by the lack of a signifi-cant
difference between the coefficients for off-diagonal
public companies and diagonal public companies, as well as
the lack of significant differences between the coefficients
for owner and agent effects when comparing internal (II vs.
IS) and external (EE vs. ES) companies. These results actu-ally
mean that the expected positive effects of changes in
ownership structures in secondary privatization on eco-nomic
efficiency cannot be observed for any of the mass pri-vatization
models in Slovenia. Thus, the analysis of individual
data has not succeeded in confirming the third, fourth and
fifth hypothesis formulated on the basis of the aggregate
analysis.
The results in Tables 3.9 and 3.10 even more strongly
confirm the results in Table 3.7.
The model in Table 3.9 separately evaluates the owner
effect and the agent/seller effect in secondary privatization
for each privatization model. The results reveal that there
are no significant differences in the economic efficiency of
privatized companies in any of the three privatization mod-els,
given that the owner effect appears in diagonal compa-nies
and agent/seller effect in off-diagonal companies.
The model in Table 3.10 disaggregates sales of compa-nies
in such a way as to distinguish sales to strategic (domes-tic
and foreign) investors from the sales to other new own-ers
in secondary privatization. The results reiterate that
there are no significant differences among privatization
models with respect to owner and agent/seller effects on
CASE Reports No. 46
Table 3.8: Economic efficiency – TFP growth: Owner effect vs. agent/seller effect
Coef. t-stat. Coef. t-stat.
Assets **0.294 10.554 **0.296 10.587
Labor **0.670 32.737 **0.669 32.755
Diagonal 0.002 0.252
II *-0.143 -2.163
IS *-0.136 -2.085
PS -0.025 -1.097
EE *-0.176 -2.403
ES *-0.175 -2.392
Lamp1 0.165 1.683
Lamp2 0.168 1.718 *0.090 2.039
Lamp3 0.157 1.633 *0.102 2.202
Cons. *0.270 1.948 *0.223 3.092
Time dummies yes yes
Sector dummies yes yes
Adj.R2 0.508 0.499
F-stat. 50.98 48.63
** and * indicate statistical significance of coefficients with 1 and 5 percents respectively, reference = PP (public diagonal companies)
II = Internal/Internal; IS = Internal/Secondary; PS = Public/Secondary; EE = External/External; ES = External/Secondary

41
Table 3.9: Economic efficiency – TFP growth: Owner effect vs. agent/seller effect separated for individual privatization model
the economic efficiency of companies. The companies sold
to strategic investors do not show higher economic effi-ciency
than the companies sold to non-strategic owners or
the diagonal companies that did not undergo secondary pri-vatization.
3.4.3. Financial Performance
We used a simple multiple regression model to analyze
the influence of primary and secondary privatization on
financial performance:
Y = α + β . X + γ . O + ε
where Y is the measure of financial performance, X includes
various factors not related to the ownership structure
which are thought to have an impact on financial perfor-mance,
and O represents dummy variables for different
ownership groups of companies from transformation matrix
(PP, II, EE, PS, IS, ES). In contrast with the TFP analytical
framework, here we do not have a solid underlying theory
about what factors determine the financial performance of
companies. We believe that for Slovenia in the 1995–1999
period it makes sense to include on the right side of equa-tion
the following independent variables.
· The size of the company, as a proxy for the importance
of the company to policy makers and for its monopo-listic
market position, is represented by sales.
· Whether the company is already at the stage of active
(strategic) restructuring via business expansion or still
in the phase of defensive restructuring via business
contraction is represented by changes in labor force and
assets.
· Because of the high sensitivity of financial results to
interest rates and foreign exchange policy, the indebt-edness
and export orientation of the companies figure as
independent variables.
· Sector dummy variables reflect the differences in eco-nomic
conditions among branches.
· Time variables are included in order to capture changes
in general business conditions (trade liberalization,
CASE Reports No. 46
Coef. t-stat. Coef. t-stat. Coef. t-stat.
Assets 0.088 0.965 **0.276 6.175 **0.402 10.897
Labor **0.928 31.810 **0.472 13.316 **0.375 9.006
Diagonal 0.038 1.414 -0.009 -0.661 -0.002 -0.185
Lamp -0.115 -1.623 0.152 1.796 -0.057 -0.686
Cons. 0.077 1.507 -0.059 -0.921 -0.099 -1.166
Time dummies Yes Yes Yes
Sector dummies Yes Yes Yes
Adj.R2 0.817 0.424 0.298
F-stat. 62.32 13.17 12.61
Observations 304 464 796
** and * indicate statistical significance of coefficients at 1 and 5 percent respectively, reference = non-diagonal companies
Table 3.10: Economic efficiency - TFP growth:
Owner effect vs. seller effect separated for individual privatization model, taking into account sales to strategic investors only
Coef. t-stat. Coef. t-stat. Coef. t-stat.
Assets 0.084 0.908 **0.275 6.116 **0.395 10.678
Labor **0.930 31.500 **0.471 13.258 **0.375 9.018
Diagonal -0.024 -0.149 -0.009 -0.315 0.046 1.122
Strategic -0.034 -0.383 -0.018 -0.900 -0.034 -1.911
Lamp -0.127 -1.462 0.150 1.710 -0.101 -1.191
Cons. 0.138 0.850 -0.058 -0.909 0.042 0.550
Time dummies Yes Yes Yes
Sector dummies Yes Yes Yes
Adj.R2 0.815 0.422 0.300
F-stat. 56.77 12.29 11.99
Observations 304 464 796
** and * indicate statistical significance of coefficients at 1 and 5 percent respectively, reference = non-strategic non-diagonal companies

42
imposition of hard budget constraints, labor market
reform) over the course of the years.
· The problem of initial differences in financial perfor-mance
is resolved in the same manner as in the TFP
model by inclusion of special correction factors (lamb-da),
which ensure unbiased estimates of regression
coefficients.
The shares of EBITDA and net profit in sales revenues
serve as the measure of financial performance. Returns to
sales are used for a simple reason, as this is a more reliable
measure than returns to assets or to equity, since the
accounting data on assets and equity are significantly less
reliable in Slovenian companies. Net profit is a much nar-rower
category, which (in addition to depreciation) takes
into account payment of interest and taxes, as well as extra-ordinary
revenues and expenditures, which, in Slovenia,
include compulsory value adjustments mandated by the
accounting standards. Net profit is therefore a good mea-sure
of financial performance for owners, as it reflects the
structure of financing. On the other hand, in Slovenia it also
reflects various factors which are not directly related to the
core business of companies and is therefore essentially less
reliable than EBITDA. The correlation matrix also points to
both indicators of returns to sales (ebitda_s and pf_s) being
typically positively correlated, although the rate of correla-tion
is significantly lower than one (i.e. 0.39).
The first model in Table 3.11 tests the influence of the
privatization model on the financial performance of compa-nies
in the period 1996–1999; the second model tests it in
the period 1998–1999 and yields better estimates. The
models were estimated using OLS.
Both correction parameters for the selection of privati-zation
model are significant, meaning that the selection bias
has a significant influence on the financial performance (as in
the TFP analytical framework). In 1989–1999 both regres-sion
coefficients are significant for internal and external pri-vatization.
It follows from the negative values of these coef-ficients
that firms privatized to internal and external owners
have worse financial performance than publicly privatized
firms. A comparable result has been obtained in examining
TFP growth, but for the whole period 1995–1999. These
results may suggest that privatization model effects show up
first in economic parameters and only later in financial para-meters.
This would be contrary to the prevailing view that
in privatized companies the new owners first take care of
financial restructuring, whereas a longer period of time is
required for the changes in productivity to show.
This model is used to test if there are significant differences
between owner effects and seller effects by different privati-zation
models with public diagonal companies serving as the
reference. The estimated parameters show that there are no
statistically significant differences in the financial performance
of privatized companies if we take into account the fact that
the owner effect is present in diagonal companies and the sell-er
effect is present in off-diagonal companies. There are no sig-nificant
differences between the owner effect and seller effect
coefficients in internal companies (II vs. IS) and external com-panies
(EE vs. ES), but all these coefficients are significantly
negative, meaning that in all four categories (II, IS, EE, ES)
financial performance is much poorer than in public diagonal
companies. These results mean that in the examined period
we do not observe the expected positive effects of changed
ownership on the financial performance of internally and
externally privatized companies. The same findings have been
obtained on the basis of the model that used net profit as the
measure of financial performance (see Table 3.13).
Table 3.11: Financial performance (EBITDA to sales ratio): The privatization model effect (combined owner and seller effect)
1996-99 1998-99
Coefficient t-stat Coefficient t-stat
Sales 1.89E-07 1.127 3.76E-07 1.295
Capital/assets **0.139 11.757 **0.156 9.454
Δ labor 1.178 0.980 2.219 1.150
Δ assets 16.890 1.356 **19.446 7.719
Export/sales **0.044 3.656 *0.039 2.152
I *-9.432 -2.438 **-17.915 -3.128
E -4.589 -0.994 *-13.831 -2.010
Lamp 2 *6.435 2.507 **11.733 3.087
Lamp 3 2.775 0.963 *8.507 1.984
Cons 5.597 1.438 *15.417 2.280
Time dummies Yes Yes
Sector dummies Yes Yes
Adj. R2 0.263 0.2894
F-stat 15.61 10.64
** and * indicate statistical significance of coefficients at 1 and 5 percents respectively; dependent variable: EBITDA_s (EBITDA to sales); reference =
P (companies privatized as public).
CASE Reports No. 46

43
Table 3.12: Financial performance (EBITDA to sales ratio): Owner effect vs. seller effect
These results are in line with the general hypothesis that
internal and external privatization yield poorer results than
public privatization as far as financial performance is con-cerned.
The poorer results of internal and external privatiza-tion
in the 1995–1999 period are related to the poorer effects
of both ownership and changed ownership. Putting it simply,
internal owners and funds seem to be relatively poor both as
owners and as sellers. In mass privatization, the absence of
positive effects of secondary privatization on financial perfor-mance
is even more troubling than the poor ownership effects
of these temporary owners.
CASE Reports No. 46
Between 1998-99
Coefficient t-stat
Sales 3.45E-07 1.186
Capital/assets **0.154 9.390
Δ labor 2.234 1.157
Δ assets **18.936 7.448
Export/sales *0.037 2.075
II **-18.252 -3.098
IS **-18.419 -3.166
PS 0.108 0.054
EE *-14.604 -2.101
ES -13.061 -1.878
Lamp 2 **12.003 3.060
Lamp 3 *8.598 1.969
Cons *15.820 2.299
Time dummies Yes
Sector dummies Yes
Adj. R2 0.289
F-stat 9.82
Observations 782
** and * indicate statistical significance of coefficients at 1 and 5 percent respectively; dependent variable: EBITDA_s (EBITDA to sales); reference =
PP (diagonal public companies).
Table 3.13: Financial performance (profit to sales ratio): Owner effect vs. seller effect
Between 1995-99
Coefficient t-stat
Sales 2.44E-09 0.980
capital/assets **0.0012 7.271
Δ labor -0.0098 -0.551
Δ assets **0.2182 8.990
export/sales **-0.0009 -5.408
II **-0.5370 -9.126
IS **-0.5296 -9.109
PS 0.0082 0.414
EE **-0.7920 -11.467
ES **-0.7638 -11.047
Lamp 2 **0.3392 8.661
Lamp 3 **0.4777 10.995
Cons **0.7398 10.714
Time variables Yes
Sector variables Yes
Adj. R2 0.225
F-stat 12.94
Observations 1564
** and * indicate statistical significance of coefficients at 1 and 5 percent respectively; dependent variable: profit to sales; reference = PP (diagonal pub-lic
companies)

44
3.5. Conclusions
The econometric results presented here show conclu-sively
that secondary privatization has had practically no
positive effect, either on economic efficiency or on financial
performance, in the 1995–1999 period in Slovenia. The
analyses by individual privatization models, individual years
and for the whole period did not render any different
results. This confirms that something is very wrong with
secondary privatization in Slovenia and that certain rules of
the game must be promptly changed and various institution-al
barriers promptly abolished. The problem of secondary
privatization in Slovenia does not only concern its relatively
slow pace but especially its failure to yield the expected pos-itive
effects on economic efficiency and financial perfor-mance.
The aggregate analyses still allowed the possibility that the
problem of secondary privatization in Slovenia was essentially
related to its slowness, as the aggregate effects of changed
ownership were positive. This suggested that the positive
effects of changed ownership would prevail in the future as a
result of accelerated secondary privatization of internal and
external companies. The econometric analysis of individual
data, however, revealed that such positive effects on econom-ic
efficiency and financial performance could not be confirmed
in the observed period. This means that improvements cannot
be expected only from acceleration of secondary privatization.
The prime problem of secondary privatization is its quality;
slowness is only a secondary problem.
CASE Reports No. 46

45
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CASE Reports No. 46
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1 T. Kamiñski: Wp³yw prywatyzacji na przeobra¿enia przedsiêbiorstw
2 A. Cylwik, J. Kasprowicz, E. Szymañska: Skutki stowarzyszenia Polski z Uni¹ Europejsk¹ oraz przyst¹pienia do stref
wolnego handlu dla liberalizacji gospodarki polskiej
3 Z. Gilowska: Drugi etap transformacji gospodarczej i politycznej w Polsce. Regionalizacja
4 J. Tanaoe, A. Surdej: Warunki prowadzenia dzia³alnooeci gospodarczej w Polsce
5 Economic Scenarios for Poland
6 S. Golinowska: Reforma Systemu Emerytalno-Rentowego
7 M. Dêbicki: Konstytucja a gospodarka
8 S. Lachowski: System finansowy w Polsce – stan obecny i prespektywy rozwoju
9 B. B³aszczyk: Prywatyzacja w Polsce po szeoeciu latach
10 S. Wellisz: Some Aspects of Trade Between Poland and the European Union
11 Praca zbiorowa pod redakcj¹ M. D¹browskiego: Stan i perspektywy reform gospodarczych w Polsce
12 J. Chmiel: Statystyka wejoecia przedsiêbiorstw do ga³êzi. Problemy pomiaru i wyniki badañ
13 K. Kloc: Szara strefa w Polsce w okresie transformacji
15 S. Golinowska, J. Hausner: Ekonomia polityczna reformy emerytalnej
16 M. D¹browski: Disinflation, Monetary Policy and Fiscal Constraints. Experience of the Economies in Transition
17 Praca zbiorowa pod redakcj¹ A. Cylwika: Szanse i zagro¿enia dla przemys³u polskiego
wskutek stowarzyszenia Polski z Uni¹ Europejsk¹
18 B. B³aszczyk, R. Woodward (eds.): Privatization and Company Restructuring in Poland
19 M. Gorzelak: Medium Term Fiscal Projection for Selected Countries in Transition: the Czech Republic, Hungary,
Poland and Romania. The Government Side
20 Z. Vajda: The Macroeconomic Implications of a Pension Reform
21 Praca zbiorowa pod redakcj¹ G.Gorzelaka: Decentralizacja terytorialnej organizacji kraju: za³o¿enia,
przygotowanie, ustawodawstwo
22 Deregulacja monopoli naturalnych na przyk³adzie rynku telekomunikacyjnego (Praca zbiorowa)
23 S. Kawalec: Banking Sector Systemic Risk in Selected Central European Countries

24 J. Chmiel: Problemy statystycznego pomiaru i analiza tendencji rozwojowych sektora prywatnych przedsiêbiorstw
w Polsce w latach 1990–1998
25 Praca zbiorowa pod redakcj¹ R. Woodwarda: Otoczenie instytucjonalne ma³ych i oerednich
przedsiêbiorstw
26 M. D¹browski: Macroeconomic and Fiscal Challenges Facing Central European Countries during the EU
Accession Process
27 Praca zbiorowa pod redakcj¹ B. B³aszczyk i A. Cylwika: Charakterystyka wybranych sektorów infrastrukturalnych
i wra¿liwych w gospodarce polskiej oraz mo¿liwooeci ich prywatyzacji
28 Praca zbiorowa pod redakcj¹ B. Liberdy: Determinanty oszczêdzania w Polsce
29 Praca zbiorowa pod redakcj¹ J.Kochanowicza: Ekonomia polityczna konsolidacji reform
30 Praca zbiorowa pod redakcj¹ B. B³aszczyk, E. Balcerowicz: Uwarunkowania wzrostu sektora prywatnego w Polsce
32 Praca zbiorowa pod redakcj¹ A. Wojtyny: Alternatywne strategie dezinflacji
33 Praca zbiorowa pod redakcj¹ A. Wojtyny: Wspieranie wzrostu gospodarczego poprzez konsolidacjê reform
34 J. Pankow, L. Dimitrov, P. Kozarzewski: Effects of Privatization of Industrial Enterprises in Bulgaria. Report on
Empirical Research
35 Praca zbiorowa pod redakcj¹ S. Golinowskiej: Edukacja i rynek pracy
36 S. Golinowska, P. Kurowski (eds.): Rational Pension Supevision, First Experiences of Central and Eastern European
States in Comparison with other Countries
37 J. Pañków (ed.): Fiscal Effects from Privatization: Case of Bulgaria and Poland
38 G. Ganev, M. Jarociñski, R. Lubenova, P. WoŸniak: Credibility of the Exchange Rate Policy in Transition Countries
39 M. D¹browski (ed.): The Episodes of Currency Crises in Latin American and Asian Economies
40 M. D¹browski (ed.): The Episodes of Currency Crises in the European Transition Economies
41 M. D¹browski (ed.): Currency Crises in Emerging Markets – Selected Comparative Studies
42 Praca zbiorowa pod redakcj¹ J. Cukrowskiego: Renta emisyjna jako Ÿród³o finansowania bud¿etu pañstwa
43 P. Bujak, M. Jarmu¿ek, S. Kordel, W. Nawrot, J. OEmietaniak: OEredniookresowa projekcja dzia³alnooeci inwestycyjnej
Otwartych Funduszy Emerytalnych na regulowanym rynku gie³dowym akcji
44 E. Balcerowicz, A. Bratkowski: Restructuring and Development of the Banking Sector in Poland. Lessons to be
Learnt by Less Advanced Transition Countries
45 E.Kocenda: Secondary Privatization in the Czech Republic: Changes in Ownership and Enterprise Performance
in Voucher- Privatized Firms

CASE Network Report 46 - Secondary Privatization in Slovenia: Evolution of Ownership Structure and Company Performance Following Mass Privatization

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CASE Network Report 46 - Secondary Privatization in Slovenia: Evolution of Ownership Structure and Company Performance Following Mass Privatization