Ownership Concentration and Restructuring in Czech Manufacturing Sector
The paper examines the dependence of firm restructuring on private outside ownership concentration in Czech manufacturing sector after privatization. It starts with the argumentation that the most important actors in the post-privatization ownership structure in the Czech Republic were investment privatization funds, followed by the state, and that the ‘rules of the game’ opened a large space for moral hazard. Based on the realization of these Czech specialties and on the logic of the break-through article by Morck, Shleifer and Vishny’s from 1988, the paper operationalizes the benefits and the costs of ownership concentration by four effects – incentive, manager-entrenchment, outsider-entrenchment and tunneling effects. This leads to the hypothesis that the concentration-restructuring function in the post- privatization Czech environment is increasing for sufficiently low as well as for sufficiently high values of concentration, while its slope in the inner band of concentration is attenuated or even negative due to the entrenchment and tunneling costs of concentration. This hypothesis is tested on an unbalanced panel data on 90 Czech companies for the years 1991-1998. OLS, FE and RE regressions with labor productivity on the left-hand sides partly confirm the hypothesis, especially the expected shape of the function for high and moderate concentration. However, no significant specification is found when instrumental variables are used to remove possible selection bias. Neither OLS, FE and RE, nor IV estimations showed a significant systematic relationship between private outside ownership concentration and the layoff and turnover ratios. The results in general report a negative effect of the state’s shareholding and a positive effect of insiders’ shareholding on restructuring.
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