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Ownership and corporate governance : evidence from the Czech Republic

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  • Claessens, Stijn
  • Djankov, Simeon
  • Pohl, Gerhard

Abstract

The Czech Republic's mass-privatization scheme changed the governance of many firms in a short time. The authors show that mass privatization was effective in improving firm management because of the concentrated ownership structure that resulted. For a cross section of 706 firms for the period 1992-95, they find that the more concentrated the firm's ownership, the higher the firm's market valuation and profitability. Large ownership through bank-sponsored investment funds and strategic investors appears to be particularly important in improving corporate governance and turning firms around. They find no evidence that market valuation or profitability were lower for firms in which investment funds sponsored by a firm's main bank represented a large ownership stake. It is often argued that the firm's main bank having (indirect) ownership control could represent a conflict of interest. The empirical analysis here shows, quite the contrary, that such indirect ownership control has a significant positive influence. On balance, banks that had an (indirect) equity stake in a firm have a positive influence on the firm's corporate governance.

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Paper provided by The World Bank in its series Policy Research Working Paper Series with number 1737.

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Date of creation: 31 Mar 1997
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Handle: RePEc:wbk:wbrwps:1737
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Keywords: Financial Crisis Management&Restructuring; International Terrorism&Counterterrorism; Economic Theory&Research; Payment Systems&Infrastructure; Banks&Banking Reform; Economic Theory&Research; International Terrorism&Counterterrorism; Financial Crisis Management&Restructuring; Banks&Banking Reform; Environmental Economics&Policies;

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  1. McConnell, John J. & Servaes, Henri, 1990. "Additional evidence on equity ownership and corporate value," Journal of Financial Economics, Elsevier, vol. 27(2), pages 595-612, October.
  2. Lease, Ronald C & McConnell, John J & Mikkelson, Wayne H, 1984. "The Market Value of Differential Voting Rights in Closely Held Corporations," The Journal of Business, University of Chicago Press, vol. 57(4), pages 443-67, October.
  3. Anderson, Robert E., 1994. "Voucher funds in transitional economies : the Czech and Slovak experience," Policy Research Working Paper Series 1324, The World Bank.
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  5. Florencio Lopez-de-Silane, 1996. "Determinants of Privatization Prices," NBER Working Papers 5494, National Bureau of Economic Research, Inc.
  6. 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 1641-58, September.
  7. Shleifer, Andrei & Vishny, Robert W, 1997. " A Survey of Corporate Governance," Journal of Finance, American Finance Association, vol. 52(2), pages 737-83, June.
  8. Pohl, G. & Djankov, S. & Anderson, R.E., 1996. "Restructuring Large Industrial Firms in Central and Eastern Europe: An Empirical Analysis," Papers 332, World Bank - Technical Papers.
  9. Megginson, William L & Nash, Robert C & van Randenborgh, Matthias, 1994. " The Financial and Operating Performance of Newly Privatized Firms: An International Empirical Analysis," Journal of Finance, American Finance Association, vol. 49(2), pages 403-52, June.
  10. Gorton, Gary & Schmid, Frank A., 2000. "Universal banking and the performance of German firms," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 29-80.
  11. Harris, Milton & Raviv, Artur, 1991. " The Theory of Capital Structure," Journal of Finance, American Finance Association, vol. 46(1), pages 297-355, March.
  12. 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 118-32, March.
  13. Levy, Haim, 1983. " Economic Evaluation of Voting Power of Common Stock," Journal of Finance, American Finance Association, vol. 38(1), pages 79-93, March.
  14. Morck, Randall & Shleifer, Andrei & Vishny, Robert W., 1988. "Management ownership and market valuation : An empirical analysis," Journal of Financial Economics, Elsevier, vol. 20(1-2), pages 293-315, January.
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