The paper is based on  research supported by
    National Bank of Hungary, Ministry of Finance
    Phare - Ace Programme (P97-8041R, "The Adjustment and Financing of Hungari an Enterprises, 1989-1998")
    Fellowship of MSH Foundation in Paris (April - June 2001)
   Janos Bolyai Fellowship of Hungarian Academy of Sciences (1999-2001)
   National Scientific Research Found (OTKA,  T 030580)

Abstract
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The aim of this study is to analyze the impacts of the market environment of firms and foreign ownership on their productivity and  growth.  We considered, as part of the market environment, payment discipline of the firms, the orientation of their export, and their business relations within the holding. We also examined the possible spillover impacts of foreign ownership on Hungarian firms through local participation in the ownership structure.

Our results show that financial and contractual discipline of firms has a significant and considerable impact on the productivity and growth of the firms. From 1995 to 2001 the Hungarian firms are increasingly less inclined to fail to comply with financial discipline. We state that foreign owned firms play a positive role in improving the payment discipline of the Hungarian company sector. But we have to draw the attention some negative phenomena. The increasing presence of foreign owned firms within the economy entails an increasing market concentration which, in turn, given that domestically owned firms are gradually ousted from domestic markets, distort competition. Another phenomenon we have observed is related to the increasing weight of business transactions within a holding structure which can be interpreted as a tendency reducing the scope of market competition. Next, indirectly we do not found any empirical evidence of positive spillover of foreign ownership through ownership participation channel. Surprisingly we found that productivity of firms dominantly exporting to EU countries is considerably inferior to that of other firms. These features draw the attention particularly to the limitations of the spillover impacts of foreign firms to the domestic owned firms in Hungary.

JEL Classification: D21, L22, O12

Keywords: firms in transition, productivity, financial discipline, foreign ownership

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Figure 1.
The share of value added of Foreign and Hungarian private owned companies in total value added of manufacturing industry 1992-1999, %

Figure 5a-5b.
Share of customers paying late their obligations and financial discipline of largest exporting firms by ownership type

Figure 6.
Share of majority foreign owned firm, their domestic sales and export in manufacturing industry 1992-1999

Figure 7.
Dynamics of concentration of domestic sales and export in manufacturing industry, 1992-1998

Figure S8.
Relationships among financial discipline, foreign ownership, export ratio and labor productivity

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