This paper examines the mechanism of the organizational transformation of state-owned enterprises (SOEs) in economies undergoing transition from central planning to market orientation. It argues that the SOE transformation reflects the influence of three groups of factors: (1) the legacies of the past, embodied in the continuing influence of the state redistributive system, (2) the realities of the emerging markets, with their forces of legitimation and competition, and (3) the intraorganizational processes affecting the organization's propensity to change. The analysis is based on a population-level study of SOEs in the construction industry in two regions of the Russian Federation during the first five years of economic reforms (1989-1993) and focuses on the separation of the SOEs' structural units. The results show that the likelihood of transformation is negatively affected by the SOE's ability to procure resources from the state (as reflected in the enterprise status in the state redistributive hierarchy), has an inverted U-shape relationship with population density (indicating the influences of competition and legitimation), and is positively affected by the prior changes of the same and related types (as captured by the prior separations from the parent company and the prior leasing arrangement).
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