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Ownership and corporate governance: evidence from the Czech Republic

Stijn Claessens (), Simeon Djankov () and Gerhard Pohl

No 1737, Policy Research Working Paper Series from The World Bank

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.

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 (search for similar items in EconPapers)
Date: 1997-03-31
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