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Information Asymmetry, Share Mispricing and the Coordination Problem: Investor Portfolio Choice in Czech Voucher Privatization

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  • Elena Yusupova
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    Abstract

    Voucher privatization in the Czech Republic presented a natural experiment of the ability of investors to construct their portfolios under conditions of asymmetric information and the absence of stock market prices. This paper provides a theoretical model of an optimal portfolio choice made by the investors maximizing their expected return and at the same time solving a coordination problem in a non-cooperative game with other investors. The perception of share misvaluation and private information are endogenized. The model offers an interpretation and theoretical justification of earlier empirical findings and explains the crucial role of the auctioneer, different optimal strategies for different types of investors and the redundancy of legal limits constraining ownership stakes in firms. The results provide implications for the design of voucher privatization, which should lead to more efficient share distribution and price setting.

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    Bibliographic Info

    Paper provided by The Center for Economic Research and Graduate Education - Economic Institute, Prague in its series CERGE-EI Working Papers with number wp301.

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    Date of creation: Jul 2006
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    Handle: RePEc:cer:papers:wp301

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    Keywords: Voucher privatization; Asymmetric information; Portfolio and strategic investors; Portfolio choice; Mispricing;

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    1. Raj Aggarwal & Joel T. Harper, 2000. "Equity Valuation in the Czech Voucher Privatization Auctions," Financial Management, Financial Management Association, vol. 29(4), Winter.
    2. Kala Krishna & Torben Tranæ s, 2002. "Allocating multiple units," Economic Theory, Springer, vol. 20(4), pages 733-750.
    3. Carlin, Wendy & Mayer, Colin, 1992. "Restructuring Enterprises in Eastern Europe," CEPR Discussion Papers 700, C.E.P.R. Discussion Papers.
    4. Jan Svejnar & Miroslav Singer, 1994. "Using vouchers to privatize an economy: the Czech and Slovak case," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(1), pages 43-69, 03.
    5. Barbara Katz & Joel Owen, 2001. "Voucher Privatization : A Detour on the Road to Transition?," Working Papers 01-09, New York University, Leonard N. Stern School of Business, Department of Economics.
    6. Barbara G. Katz & Joel Owen, 1995. "Optimal Voucher Privatization Fund Bids When Bidding Affects Firm Performance," Working Papers 95-20, New York University, Leonard N. Stern School of Business, Department of Economics.
    7. S.J. Rassenti & V.L. Smith & R.L. Bulfin, 1982. "A Combinatorial Auction Mechanism for Airport Time Slot Allocation," Bell Journal of Economics, The RAND Corporation, vol. 13(2), pages 402-417, Autumn.
    8. Bennett, John & Estrin, Saul & Maw, James & Urga, Giovanni, 2004. "Privatization Methods and Economic Growth in Transition Economies," CEPR Discussion Papers 4291, C.E.P.R. Discussion Papers.
    9. Groves, Theodore, 1973. "Incentives in Teams," Econometrica, Econometric Society, vol. 41(4), pages 617-31, July.
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