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characteristics (“autonomous” change). The results for new private firms in Table V.9 are more striking. The “Total” row shows that the main change has been for new private firms to rely less on informal financing (-8.2 percentage points) and more on retained earnings (+9.8). Interestingly, in both cases the autonomous shifts are larger still (-18.2 and +17.9 percentage points respectively) but these are offset by large coefficient effects relating to size. Since the coefficient effects for new private firms in 2005 differ little from those for privatized firms, and together these differ little from private firms in DMEs, we have a double convergence story: new private firms have become more like privatized firms and DME firms in terms of how their characteristics relate to financing, and new private firms have “matured” in the sense that they rely less on family and informal financing (perhaps relating to start-up) and more on retained earnings, like privatized firms. Lastly, the results in Table V.10 for SOEs provide evidence for the hardening of budget constraints in the region. The big change for SOEs has been the decline in the share of state financing (-13.3 percentage points). Interestingly, the autonomous decline has been even larger (a remarkable -22.7 percentage points), offset by increases relating to endowments (sector, location and export activity). Our interpretation is that soft budget constraints, or stated financing more generally, has become more selective and more targeted. The decrease in state financing has been made up by a corresponding increase in retained earnings, roughly equally explained by an autonomous increase of 10.2 percentage points and an increase of 7.9 percentage points.


Deep restructuring

The early literature on enterprise restructuring in transition economies distinguishes between “defensive” restructuring on the one hand, and “deep”, “proactive” or “strategic” restructuring on the other (Grosfeld and Roland, 1996). The early transition period was defined by large-scale defensive restructuring, as state-owned firms shed labor, controlled costs, discontinued product lines which were no longer in demand and tried to maintain sales of their remaining products. While this was happening, new private firms were starting up. These new firms were, almost by definition, engaged in activities that merit


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