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Economics of Corporate Form: Why Do Russian Firms Prefer to Be Closed Companies?

Listed author(s):
  • Iwasaki, Ichiro

In Russia, an overwhelming number of joint-stock companies (JSCs) choose to become closed companies despite the fact that this corporate form strays far from the primary nature of stock companies. Using the results of a Japan-Russia joint enterprise survey conducted in 2005, we examine a variety of factors as to why Russian stock companies select to become closed companies. Our empirical results suggest the following four factors encouraging many of Russian firms to be closed JSCs: (a) a widespread insider-dominating corporate ownership structure emerging as a result of the mass-privatization policy; (b) a strong orientation among managers toward closed corporate organization due to the underdeveloped capital and managerial markets; (c) slumping needs for corporate finance; and (d) insufficient financial support from local financial institutions. The empirical relationship between corporate form and ownership structure exists, even if we assume the endogeneity of the two elements.

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Paper provided by Russian Research Center, Institute of Economic Research, Hitotsubashi University in its series RRC Working Paper Series with number 3.

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Length: 24 p.
Date of creation: May 2013
Handle: RePEc:hit:rrcwps:3
Note: This paper was produced as a result of a Japan-Russia joint research project entitled “Corporate Governance and Integration Processes in the Russian Economy” launched by the Institute of Economic Research, Hitotsubashi University (Tokyo) and the Institute for Industrial and Market Studies, National Research University – Higher School of Economics (Moscow). The research was financially supported by the Japan Securities Scholarship Foundation (JSSF) and grants-in-aid for scientific research from the Ministry of Education and Science of Japan (Nos. 16530149; 17203019; 21402025; 23243032). I also thank Naohito Abe, Tatiana G. Dolgopyatova and Andrei Yakovlev for their valuable comments and Jim Treadway for his editorial assistance. Needless to say, all remaining errors are mine., Revised version; first published in December 2007
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  1. Gordon, Roger H. & MacKie-Mason, Jeffrey K., 1994. "Tax distortions to the choice of organizational form," Journal of Public Economics, Elsevier, vol. 55(2), pages 279-306, October.
  2. Newey, Whitney K., 1987. "Efficient estimation of limited dependent variable models with endogenous explanatory variables," Journal of Econometrics, Elsevier, vol. 36(3), pages 231-250, November.
  3. Demirguc-Kunt, Asli & Love, Inessa & Maksimovic, Vojislav, 2006. "Business environment and the incorporation decision," Journal of Banking & Finance, Elsevier, vol. 30(11), pages 2967-2993, November.
  4. Blass, Asher A & Carlton, Dennis W, 2001. "The Choice of Organizational Form in Gasoline Retailing and the Cost of Laws That Limit That Choice," Journal of Law and Economics, University of Chicago Press, vol. 44(2), pages 511-524, October.
  5. Sergei Guriev & Andrei Rachinsky, 2005. "The Role of Oligarchs in Russian Capitalism," Journal of Economic Perspectives, American Economic Association, vol. 19(1), pages 131-150, Winter.
  6. Karpoff, Jonathan M. & Rice, Edward M., 1989. "Organizational form, share transferability, and firm performance : Evidence from the ANCSA corporations," Journal of Financial Economics, Elsevier, vol. 24(1), pages 69-105, September.
  7. Rivers, Douglas & Vuong, Quang H., 1988. "Limited information estimators and exogeneity tests for simultaneous probit models," Journal of Econometrics, Elsevier, vol. 39(3), pages 347-366, November.
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