Changes in ownership concentration in mass privatizd firms: Evidence from Poland and the Czech Republic

We analyse the changes in ownership concentration in firms included in two mass privatisation programmes in Poland and the Czech Republic. We find that despite important differences in the design of the two privatisation schemes and despite different quality of regulatory environments, the ownership structure emerging 4-5 years after the initial distribution of assets is remarkably similar in the two countries. Ownership concentration defined as the share of the largest equity holder has significantly increased. Exploring the determinants of ownership concentration, we check whether such revealed preference for higher participation in firm equity does not hide different motivations and behaviour of investors. Our results reveal interesting differences between the two countries: in the Czech Republic the increase in ownership concentration was less likely in poorly performing firms, while in Poland the quality of past performance did not affect investors' willingness to increase their holdings. This contrasting result may reflect the difference in the quality of laws and regulations in Poland and in the Czech Republic. In the Czech Republic, where tunnelling was a common practice in the period covered by our study, shareholders increasing their stakes in a company could have been motivated by the objective of extracting value rather than by the willingness to impose a specific direction on the way the firm is managed. This might explain why they prefer to increase their control in those companies which perform well rather than those that perform poorly.