Privatization and entrepreneurial transformation: the role of developmental financial institutions

Abstract

With ongoing privatization efforts in emerging economies, governments have supported developmental financial institutions (DFI) to spur entrepreneurial activity in the absence of private venture capitalists. DFIs are quasi-governmental financial institutions with independent managerial control that often act within the constraints of a rapidly changing environment to support and accelerate privatization. In spite of their critical role in economic transformation, DFIs have received little attention in the management literature. We draw on two theoretical frameworks to develop an initial process model of DFI involvement with privatized firms in emerging economies. First, we use stakeholder theory to argue that post-privatization stakeholders differ in their motives to initiate organizational restructuring which is required for drawing DFI support. Second, we evoke the relational view of the firm to posit that DFI involvement generates relational rents that create value for the privatized entity. We discuss theoretical implications of including DFIs in privatization and management research in the emerging economy context.