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Capital market development and mass privatization are logical contradictions: lessons from Russia and the Czech Republic

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  • Bruce Kogut

Abstract

The introduction of mass privatization policies in Russia and the Czech Republic depended on the creation of impersonal capital markets to finance the needs of privatized companies and to provide a secondary market for the trading of securities. Yet, mass privatization created the contradictory conditions of generating millions of poorly informed shareholders, with no efficient markets for the sale of the shares. The absence of financial markets created systematic pressures to move assets by illegal or non-transparent means to users who value them more. Privatization created the incentives to destroy the financial markets critical to its success. A comparative case analysis of post-privatization market formation in both these countries demonstrates that the functional necessity for these markets does not engender their own creation. In the absence of institutional mechanisms of state regulation and trust, markets become arenas for political contests and economic manipulation. The irony of these policies is that a principal lesson has been that market reforms cannot create viable markets, only institutional formation can. Copyright 2002, Oxford University Press.

Suggested Citation

  • Bruce Kogut, 2002. "Capital market development and mass privatization are logical contradictions: lessons from Russia and the Czech Republic," Industrial and Corporate Change, Oxford University Press and the Associazione ICC, vol. 11(1), pages 1-37, February.
    • Handle: RePEc:oup:indcch:v:11:y:2002:i:1:p:1-37
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    Cited by:

    1. Andreff, Wladimir, 2013. "Une transition économique inattendue : vers le « cupidalisme » ?," Revue de la Régulation - Capitalisme, institutions, pouvoirs, Association Recherche et Régulation, vol. 14.
    2. Mihaela Grubišiæ Šeba, 2017. "20 Years of the Croatian Capital Market," Zagreb International Review of Economics and Business, Faculty of Economics and Business, University of Zagreb, vol. 20(SCI), pages 41-58, April.
    3. Puffer, Sheila M. & McCarthy, Daniel J., 2007. "Can Russia's state-managed, network capitalism be competitive?: Institutional pull versus institutional push," Journal of World Business, Elsevier, vol. 42(1), pages 1-13, March.
    4. Andrew Spicer, 2009. "The Normalization of Corrupt Business Practices: Implications for Integrative Social Contracts Theory (ISCT)," Journal of Business Ethics, Springer, vol. 88(4), pages 833-840, October.
    5. Winfred Trexler Proffitt Jr, 2003. "Gouvernance des entreprises:la construction d'un champ social par la loi américaine," Revue Finance Contrôle Stratégie, revues.org, vol. 6(4), pages 133-154, December.
    6. Bevan, Alan & Estrin, Saul & Meyer, Klaus, 2004. "Foreign investment location and institutional development in transition economies," International Business Review, Elsevier, vol. 13(1), pages 43-64, February.
    7. Hedayati , Arshad & Rahman Sersht , Hossein, 2017. "Repairing the Organizational Trust to Maintain and Enhance Deposits in Iran," Journal of Money and Economy, Monetary and Banking Research Institute, Central Bank of the Islamic Republic of Iran, vol. 12(4), pages 409-432, October.
    8. Vincent Lefebvre & Miruna Radu Lefebvre, 2012. "Integrating Corporate Social Responsibility at the Start-up Level: Constraint or Catalyst for Opportunity Identification?," Post-Print hal-00836856, HAL.
    9. repec:rdg:wpaper:em-dp2004-14 is not listed on IDEAS
    10. Shu-Yun Ma, 2010. "Shareholding System Reform in China," Books, Edward Elgar Publishing, number 13243.
    11. Tulbure, Narcis & Catarama, Delia, 2009. "Institutional and Socio-Cultural Factors Explaining the Development of Mutual Funds. A Cross-Country Analysis," MPRA Paper 20341, University Library of Munich, Germany.
    12. Bechir Mokline, 2021. "The Recognition of Business Opportunity in Female Entrepreneurship: State of Play in a Tunisian Context," Journal of Entrepreneurship and Innovation in Emerging Economies, Entrepreneurship Development Institute of India, vol. 7(2), pages 118-146, July.
    13. Ozcan, Gul Berna & Cokgezen, Murat, 2003. "Limits to Alternative Forms of Capitalization: The Case of Anatolian Holding Companies," World Development, Elsevier, vol. 31(12), pages 2061-2084, December.
    14. Yosem Companys & Jeffery McMullen, 2007. "Strategic Entrepreneurs at Work: The Nature, Discovery, and Exploitation of Entrepreneurial Opportunities," Small Business Economics, Springer, vol. 28(4), pages 301-322, April.
    15. Daniel Erian Armanios & Charles E. Eesley & Jizhen Li & Kathleen M. Eisenhardt, 2017. "How entrepreneurs leverage institutional intermediaries in emerging economies to acquire public resources," Strategic Management Journal, Wiley Blackwell, vol. 38(7), pages 1373-1390, July.
    16. Wladimir Andreff, 2003. "Le gouvernement d’entreprise à l’Est : vers un modèle de contrôle centre-européen ?," Revue d'Économie Financière, Programme National Persée, vol. 72(3), pages 173-199.
    17. V. K. Narayanan & Liam Fahey, 2005. "The Relevance of the Institutional Underpinnings of Porter's Five Forces Framework to Emerging Economies: An Epistemological Analysis," Journal of Management Studies, Wiley Blackwell, vol. 42(1), pages 207-223, January.

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