This paper analyses the trade-off between the need to restructure a firm before privatization and to provide an appropriate corporate governance for the privatized firm. In order to provide managers with appropriate incentives to run the company, once privatized, it may be optimal to let them acquire equity in the firm. However, they may then have incentives to under-perform before the privatization takes place, in order to pretend that the firm's assets are not valuable. If investors believe it (and therefore are not willing to pay a high price for the shares) managers (and insiders in general) can get a larger amount of the firm shares during privatization. Empirical observations are generally consistent with this theory.