Privatisation and firm behaviour in national transformation: the case of Hungary

Antal, Zoltan (1995) Privatisation and firm behaviour in national transformation: the case of Hungary. Doctoral thesis, University of London: London Business School.

Abstract

This thesis is concerned with the behaviour of formerly state-owned enterprises that are subject to privatisation in the context of national transformation. In general, this research explores conditions under which privatisation can facilitate turnaround of state-owned firms. Specifically, it concentrates on the issue of why, contrary to theoretical propositions as well as practical expectations, privatisation has as yet resulted in only modest results in strategic restructuring of privatised firms in Hungary. This study utilises concepts and models of economic and organisation theory. It focuses not only on ownership changes as inputs and resulting behavioural changes as outputs, but also on the process in which these changes unfold. In that, it advances a view of privatisation that is driven by organisation theory, to complement the dominant economic model based on the agency theory. In-depth longitudinal case studies have been conducted to investigate whether there is a certain pattern in the privatisation process. What are the characteristics of privatisation processes of individual firms? What are the factors that control the dynamics of the process? How do process characteristics of privatisation affect turnaround? Based on the answers to these questions, an empirically grounded theory was developed for the analysis of turnaround success and failure of privatised firms. In this theory, factors that determine turnaround include 1) the level of politicisation of the bargaining process in which the question of future ownership gets resolved, 2) the level of organisational politicking that surrounds both privatisation and strategymaking processes, 3) the effectiveness of corporate governance, and 4) the level of resource replenishment brought about by privatisation. Various combinations of these factors lead to different scenarios in which possible results are turnaround success, turnaround failure, and turnaround handicapped by either process characteristics of privatisation, or its outcome, or both. Our results support the proposition that goal conflicts and their resolution through the use of political means make the outcome of the privatisation process difficult to predict on the basis of the rational actor model. Privatisation can be regarded as a gradually unfolding, evolutionary process. In national transformation, defective corporate governance can permit politicking to take a priority over performance. In the long-drawn-out process of privatisation, attention is diverted from efficiency. This exacerbates the firm's 'drift', which further restricts the chances of privatisation. Due to uncertainties in the privatisation process, managerial business decisions are built on vague assumptions about the likely outcome of privatisation and, if these assumptions prove false, the firm's strategy will turn out to be ineffective. Essentially, these propositions suggest that the more procrastinated and politicised the privatisation process, the more handicapped the turnaround, which might not be offset by effective corporate governance and high levels of resource replenishment at the end of the process.