Privatization has been studied extensively, with consistent evidence that privatized firms in transition economies outperform SOEs.  Private sector growth comes from two main sources: the privatization of formerly state-owned enterprises (SOEs) and the creation of new, private firms. Djankov and Murrell (2002), and Havrylyshyn and McGettigan (1999) provide reviews of the transition economy privatization literature.  Empirical studies of the impact and performance of new firms include Berkowitz and DeJong (2002), Winiecki (2003), and Thurik and Wennekers (2004), among others.  Privatization in Slovenia is studied by Smith et al. (1997) and Simoneti et al. (2001).
            Early privatization efforts in Slovenia didn’t yield many efficiency and performance improvements (Smith et al., 1997).  Smith et al. uses a subset of data on Slovenian manufacturing firms to analyze efficiency gains in enterprises as a result of privatization and foreign ownership during the period 1989-1992.  Our paper builds on Smith et al. and examines efficiency gains of Slovenian enterprises over the eleven year period 1995-2006.  We focus on the ownership structure of enterprises and compare performance of privatized firms and SOEs to newly created, i.e., de novo, ventures. We use existing theoretical frameworks and literature to develop testable hypotheses about financial performance, growth, and efficiency.   Our research spans the initial stages of Slovenian transition as well as the more mature, later stage of Slovenian convergence to a more efficient market economy, including the country’s 2004 entry to the European Union.
We employ a unique data set managed by the AOP (Slovenian Agency for Payments), which contains detailed income statement and balance sheet data on all Slovenian firms including type and changes in ownership as well as activity and number of startups. We estimate a total factor productivity growth model (TFP) and control for the initial conditions as well as institutional changes in Slovenia during this period, specifically legal changes. 
Our results contribute to the ongoing debate about how transitioning economies can most efficiently foster private sector growth.  Our results suggest that de novo private sector firms grow revenue more quickly, hire more employees, and in general perform better than privatized and non-privatized firms.  We also find weak evidence that privatized firms outperform non-privatized entities. Our research highlights the importance of devoting transition resources to policies and institutions that foster entrepreneurial activity rather than an exclusive focus on privatization.  Although privatized firms perform better than firms that remain state-owned, the superior results of de novo firm suggests that encouraging entrepreneurial activity may be the best use of limited resources when transition begins.