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Capital markets, financial intermediaries, and corporate governance : an empirical assessment of the top ten voucher funds in the Czech Republic

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  • Egerer, Roland

Abstract

Voucher privatization was expected to result in widely dispersed ownership with little effect on firms'governance. But in the first wave of privatization, more than 70 percent of Czech vouchers went to investment funds and the 10 largest Czech and Slovak investment funds (surveyed for this study) acquired roughly half of all voucher points. And the large funds can influence corporate governance. Also, a fund's actual role depends on the sponsoring institution's or individual's incentives structure. Banks and investment funds lack the skills and incentives to initiate corporate restructuring, but funds with significant stakes can readily compare managers'performance and remove underperforming executives and can counterbalance the control of management and employees. Funds can also effectively monitor firms on behalf of groups of small investors. After privatization, most Czech assets are now owned by funds affiliated with banks. In market economies, a close relationship between banks and enterprises can be seen as a conflict of interest. In transition economies, banks and funds have spontaneously developed a relationship as a way for banks to get information about firm performance. Bank-sponsored funds reduce banks'information and monitoring costs and hence lending risk and costs. They also facilitate the informal workout of problem loans.

Suggested Citation

  • Egerer, Roland, 1995. "Capital markets, financial intermediaries, and corporate governance : an empirical assessment of the top ten voucher funds in the Czech Republic," Policy Research Working Paper Series 1555, The World Bank.
  • Handle: RePEc:wbk:wbrwps:1555
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    References listed on IDEAS

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    1. Shafik, Nemat & DEC, 1993. "Making a market : mass privatization in the Czech and Slovak Republics," Policy Research Working Paper Series 1231, The World Bank.
    2. Ramirez, Carlos D, 1995. " Did J. P. Morgan's Men Add Liquidity? Corporate Investment, Cash Flow, and Financial Structure at the Turn of the Twentieth Century," Journal of Finance, American Finance Association, vol. 50(2), pages 661-678, June.
    3. Takeo Hoshi & Anil Kashyap & David Scharfstein, 1990. "Bank Monitoring and Investment: Evidence from the Changing Structure of Japanese Corporate Banking Relationships," NBER Chapters,in: Asymmetric Information, Corporate Finance, and Investment, pages 105-126 National Bureau of Economic Research, Inc.
    4. Takeo Hoshi & Anil K. Kashyap & David Scharfstein, 1989. "Bank monitoring and investment: evidence from the changing structure of Japanese corporate banking relations," Finance and Economics Discussion Series 86, Board of Governors of the Federal Reserve System (U.S.).
    5. Michael G. Spencer & H. J. Blommestein, 1993. "The Role of Financial Institutions in the Transition to a Market Economy," IMF Working Papers 93/75, International Monetary Fund.
    6. Cable, John R, 1985. "Capital Market Information and Industrial Performance: The Role of West German Banks," Economic Journal, Royal Economic Society, vol. 95(377), pages 118-132, March.
    7. 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, March.
    8. Claessens, Stijn, 1997. " Corporate Governance and Equity Prices: Evidence from the Czech and Slovak Republics," Journal of Finance, American Finance Association, vol. 52(4), pages 1641-1658, September.
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    Cited by:

    1. Drakos, Konstantinos & Giannakopoulos, Nicholas, 2011. "On the determinants of credit rationing: Firm-level evidence from transition countries," Journal of International Money and Finance, Elsevier, vol. 30(8), pages 1773-1790.

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