Corporate Structure and Performance in Hungary

Abstract

All economies are heterogeneous. The behavior of the economic agents with different in important aspects. However, in a stable environment usually strong forces shape a typical behavior, thus many agents act similarly. On the one hand, the behavior of agents will be much less uniform in an unstable transitional environment. On the other hand, transition also meant very strong pressures and narrow constraints for Hungarian enterprises resulting in different but typical behavioral patterns. The objective of this paper is to investigate these patterns through the phases of the transition process. We analyze relevant segments of the economy and follow through behavioral changes. We investigate the behavior of both the newly created firms and the disappearing laroe former socialist corporations. We also analyze the behavior of foreign owned companies. Strong import competition and competition from de novo firms shaped the behavior of former oligopolists, and the response to these competitive pressures varied over groups of firms. We employ production functions for exploring differences among these groups of firms and the typical adjustment process of each group separately throughout the transition period until 1996. The estimated production functions indicate gradual improvement in efficiency and a shift from decreasing to increasing returns to scale. Market share can be explained by the degree of internal and external competition and by the efficiency of the firm. There is little apparent relationship between efficiency and profit or investment.