The choice of ownership structure: Evidence from Russian mass privatization

We use a large data set of Russian manufacturing firms to describe the ownership structure in the Russian industry at the end of the mass privatization program in 1994 and its subsequent evolution. The data shows a high, but gradually decreasing ownership stakes of firm insiders (managers and workers). We estimate the effect of a wide range of firm characteristics on the decision to privatize, the initial ownership structure after privatization, and on subsequent changes of ownership stakes. We test and find support for several predictions of the model by Aghion and Blanchard (1998). For example, collusion among workers makes them more reluctant to sell shares to outsiders. Firms in financial distress show a higher incidence of insiders selecting the option of privatization leading to high insider ownership. This can be explained by their desire to insure against unemployment in the case of restructuring by outsiders. No evidence is found of a sequencing in privatization according to the performance of firms before privatization. A methodological novelty of this paper is the application of a tobit model with sample selection to the choice of ownership stakes.     

Block trades and the benefits of control in Slovenia1

Ownership and control have been concentrating in most transition countries. The consolidation of control introduces changes in the power distribution within privatized firms and, most importantly, redirects the corporate governance problem to a conflict between large and small shareholders. In this study, we evaluate the ownership changes in Slovenian privatized firms through an analysis of stock price reactions to the entrance of a new blockholder (the shared benefits of control) and through an estimation of the premiums paid for large blocks (the private benefits of control). We provide evidence of and discuss the reasons for the failures of the privatization investment funds in implementing control over firm managers and in promoting the restructuring of firms in the first post‐privatization years.     

Post-privatization corporate governance and firm performance: The role of private ownership concentration,identity and board composition

We examine and analyze the post-privatization corporate governance of a sample of 52 newly privatized Egyptian firms over a period of 10 years, from 1995 to 2005. We look at the ownership structure that results from privatization and its evolution; the determinants of private ownership concentration; and the impact of private ownership concentration, identity and board composition on firm performance. We find that the state gives up control over time to the private sector, but still controls, on average, more than 35% of these firms. We also document a trend in private ownership concentration over time, mostly to the benefit of foreign investors. Firm size, sales growth, industry affiliation, and timing and method of privatization seem to play a key role in determining private ownership concentration. Ownership concentration and ownership identity, in particular foreign investors, prove to have a positive impact on firm performance, while employee ownership concentration has a negative one. The higher proportion of outside directors and the change in the board composition following privatization have a positive effect on firm performance. These results could have some important policy implications where private ownership by foreign investors seems to add more value to firms, while selling state-owned enterprises (SOEs) to employees is not recommended. Also, the state is highly advised to relinquish control and allow for changes in the board of directors following privatization as changing ownership, per se, might not have a positive impact on firm performance unless it is coupled with a new management style.     

The impact of privatization on firm performance in a transition economy

The Vietnamese privatization programme, launched in 1992, differs from the usual Western privatization programmes in terms of the residual percentage of shares owned by the state and the portion of shares owned by insiders. This begs the question whether these differences influence the effects of the programme on firm performance. This study measures the impact of privatization on firm performance in Vietnam by comparing the pre‐ and post‐privatization financial and operating performance of 121 former state‐owned enterprises (SOEs). We find significant increases in profitability, sales revenues, efficiency and employee income. Results of applying the ‘difference‐in‐difference’ (DID) method, wherein a control group of firms is used to pick up the influence of other determinants of firm performance, suggest that the performance improvements may indeed be associated with equitization. Regression analyses reveal that firm size, residual state ownership, corporate governance and stock market listing are key determinants of performance improvements.     

Restructuring outcomes and the evolution of ownership patterns in Central and Eastern Europe

This paper begins from the proposition that ‘deep restructuring’ requires both finance and managerial expertise. It addresses the question of how this second stage of enterprise restructuring will come about in the majority of state-owned or former state-owned firms that are not owned by foreigners. In particular, it seeks to identify how the initial post-privatization ownership and control structure impinges on the likelihood that deep restructuring takes place. Conclusions for the design of privatization policy are drawn. The initial post-privatization ownership structures in the Visegrad countries and Russia are surveyed along with evidence of the transfer of ownership from insiders to outsiders.     

企业改制模式和改制绩效——基于企业数据调查的经验分析

本文以上世纪90年代后半期的企业调查数据为基础,通过建立经济计量模型来研究公有企业的改制绩效,通过相应的技术处理消除企业的各种先天因素或改制前固有的优势,试图测试改制是否能够确实激发出显著的效率效应。分析发现,向私有产权方向改制的企业效率得到显著提高;不同的改制模式是改制绩效的重要决定因素,经营者持大股从效率上来讲是最优的改制方式,而平均分配的股份合作制的改制方式则具有较差的业绩效果。我们还讨论了其原因,以及为什么中国现阶段特定制度环境下最优的公司治理结构是大股东控股。我们认为给定当前制度背景下,最佳的改革方案之一是股权向经营者集中,股权合理定价。因为只有市场的初次分配是有效率的,才能得到收入再分配的源泉。在此基础上,国家可通过各种税收设计,进行较为公平合理的收入再分配。     

Corporate governance following mass privatization

Using vouchers to privatize state-owned firms was an innovative but controversial aspect of transition. In the Czech Republic, voucher privatization created a large group of minority shareholders who coexisted with large shareholder–managers who controlled firms. Critics allege that the structure of shareholdings and regulatory failures allowed pervasive theft of corporate assets, much of it financed by irresponsible bank lending, and led to a financial crisis and an economic downturn. I argue that neither anecdotal evidence of managerial malfeasance nor the theories of tunneling and looting provide strong evidence for this view of corporate governance in the Czech Republic. A lack of small shareholder protection seems to have imposed small costs on the economy, and it may have facilitated rather than hampered the restructuring of firms.     

The restructuring of insider-dominated firms: A comparative analysis

We study the effects of different modalities of privatization to insiders on the restructuring process in two former Soviet republics - Georgia and Moldova -using enterprise survey data for 1995-97. Enterprise restructuring was similar in companies where incumbent managers received significant ownership stakes for free and in state-owned companies. In contrast, the restructuring process was faster in companies bought by their managers. We interpret these results to suggest that managers' incentives to restructure decrease when they perceive their newly acquired ownership as a windfall gain.     

What determines stock liquidity in Australia?

Using an index of corporate governance quality (CGQ), we provide the first robust evidence of the determinants of stock liquidity in Australia. We assume that CGQ affects stock liquidity because effective governance decreases information asymmetries between insiders (e.g. managers) and outsiders (e.g. investors), as well as among outsiders, by improving information transparency of a firm. Consistent with agency theory, this study, using 435 large capitalization firms over the period from 2001 to 2008, finds a significant positive relationship between CGQ and stock liquidity, suggesting that better governed firms have a higher level of stock liquidity. These findings are robust to alternative proxies of CGQ, stock liquidity and endogeneity bias.     

Origin and concentration

We analyse the effects of different types and concentration of ownership on performance using a large population of firms in the Czech Republic after mass privatization. Specifications based on first‐differences combined with instrumental variables show that the performance effects of different types and concentration of ownership are limited when compared to earlier studies. Often, concentrated ownership has a positive effect, a finding that supports the agency theory. The positive effect of foreign ownership is detected primarily for majority ownership and for ownership by foreign industrial firms. The state as a holder of the golden share has a positive effect on employment and sometimes, also on output and profitability. Overall, our results highlight the benefits of strategic restructuring accompanied by an inflow of new capital and managerial culture.     

POST‐PRIVATIZATION OWNERSHIP AND FIRM PERFORMANCE: A LARGE META‐ANALYSIS OF THE TRANSITION LITERATURE

This paper aims to perform a large‐scale meta‐analysis of the relationship between post‐privatization ownership and firm performance in Central and Eastern Europe and the former Soviet Union. Baseline estimation of a meta‐regression model that employs a total of 2,894 estimates drawn from 121 previous studies indicated the superior impact of foreign ownership on firm performance in comparison with state and domestic private entities. Furthermore, the estimation of an extended meta‐regression model that explicitly controls for the idiosyncrasies of transition economies and privatization policies strongly suggested that differences between countries in location, privatization method, and speed of policy implementation strongly influence the link between post‐privatization ownership structure and firm performance. We also found that these factors not only cause a remarkable gap between countries in terms of ex post improvement in firm performance but also significantly affect the interrelationship between foreign investors, domestic outsider owners, and firm managers, and the relative superiority of various domestic outsiders. Conclusive evidence of the harm caused to ex post firm performance by voucher privatization is one of the most noteworthy empirical findings in this paper.     

Privatization,Underpricing, and Welfare in the Presence of Foreign Competition

We analyze privatization in a differentiated oligopoly setting with a domestic public firm and foreign profit‐maximizing firms. In particular, we examine pricing below marginal cost by the public firm, the optimal degree of privatization, and the relationship between privatization and foreign ownership restrictions. When market structure is exogenous, partial privatization of the public firm improves welfare by reducing public sector losses. Surprisingly, even at the optimal level of privatization, the public firm's price lies strictly below marginal cost, resulting in losses. Our analysis also reveals a potential conflict between privatization and investment liberalization (i.e., relaxing restrictions on foreign ownership) in the short run. With endogenous market structure (i.e., free entry of foreign firms), partial privatization improves welfare through an additional channel: more foreign varieties. Furthermore, at the optimal level of privatization, the public firm's price lies strictly above marginal cost and earns positive profits.     

China’s secondary privatization: new evidence on controlling shareholders tunnelling

This article utilizes the 2005 split-share structure reform (SSSR) in China as a natural experiment and conducts difference-in-differences (DID) tests to analyse corporate governance changes among Chinese SOEs compared to POEs. We show that tunnelling significantly reduced in both POEs and SOEs after the SSSR. More importantly, we find a significant and positive ‘privatization effect’ on SOEs’ tunnelling activities during the post-reform period suggesting the reductions of tunnelling were smaller among SOEs than POEs following the SSSR. In contrast, excess returns around the SSSR indicate that investors expected a negative ‘privatization effect’ on SOEs’ tunnelling. These findings suggest that the quality of corporate governance did not improve among SOEs as a result of the secondary privatization as the stock market expected without fundamental changes to firm ownership and control following the SSSR. The benefits of privatization accrue to the government controlling shareholders rather than minority investors.     

股权结构与财务重述:来自上市公司的证据

本文以财务重述为研究视角,在考察控股程度与控股股东性质交叉作用的基础上,研究股权结构的治理效率。研究结果显示,在没有绝对控股股东的情况下,无论公司第一大股东的最终控制人是国有还是非国有性质,其发生财务重述的可能性都比国有控股上市公司发生财务重述的可能性显著要高;在绝对控股条件下,最终控制人为非国有性质的上市公司发生财务重述的可能性比国有性质的公司发生财务重述的可能性显著要低。研究结论表明,分散化的股权和国有股权对公司管理层的制约效果相对较差,从而使公司进行盈余操纵的可能性更高。本文借助公司财务重述行为,深化了已有公司治理方面的研究,并为监管部门和投资者的决策提供重要依据。     

Divestitures,privatization and corporate performance in emerging markets

We use new firm‐level data to examine the effects of firm divestitures and privatization on corporate performance in a rapidly emerging market economy. Unlike the existing literature, we control for accompanying ownership changes and the fact that divestitures and ownership are potentially endogenous variables. We find that divestitures increase the firm's profitability but do not alter its scale of operations, while the effect of privatization depends on the resulting ownership structure – sometimes improving performance and sometimes bringing about decline. The effects of privatization are thus more nuanced than suggested in earlier studies. Methodologically, our study provides evidence that it is important to control for changes in ownership when analyzing divestitures and to control for endogeneity, selection and data attrition when analyzing the effects of divestitures and privatization.     

Do good governance provisions shelter investors from contagion?Evidence from the Russian crisis1

This paper studies how the Russian crisis of 1998 affected listed firms in transition economies. The data cover 394 companies that were listed before the Russian crisis, and include financial, industry, ownership and stock market information. Results show that in the short term (within one month of the crisis) good governance did not shelter investors from contagion. On the contrary, stock returns during the crisis period were lower for the largest and most liquid stocks and markets in the region irrespective of their direct exposure to Russia. The paper also documents that in the longer term (one year after the crisis) recovery was faster in firms without direct trade exposure to Russia, as well as in firms with better firm‐level governance as proxied by the presence of a foreign blockholder. The paper presents evidence that both firm‐ and country‐level characteristics are important in overcoming the effects of a crisis. Firm‐specific characteristics, however, play a bigger role for companies operating in countries with weaker corporate governance.     

Imported inputs and privatization in downstream mixed oligopoly with foreign ownership

This paper examines welfare implications of privatization in a mixed oligopoly with vertically related markets, where an upstream foreign monopolist sells an essential input to public and private firms located downstream in the domestic country. The impact on domestic welfare of privatizing the downstream public firm is shown to contain three effects. The first is an output distortion effect, which negatively affects welfare since privatization decreases the production of final good for consumption. The second is an input price lowering effect resulting from a decrease in derived demand for the input. When the level of privatization increases, a decrease in final good production lowers input demand, causing input price to decline and domestic welfare to increase. The third is a rent‐leaking effect associated with foreign ownership in the downstream private firm. The rival domestic firm strategically increases its final good production, causing profits accrued to foreign investors to increase and domestic welfare to decline. Without foreign ownership in the downstream private firm, the optimal policy toward the public firm is complete privatization as the output distortion effect is dominated by the input price lowering effect. With foreign ownership, however, complete privatization can never be socially optimal due to the additional negative impact on domestic welfare of the rent‐leaking effect. We further discuss implications for domestic welfare under different privatization schemes (e.g., selling the privatization shares to the upstream foreign monopolist or to the rival domestic firm).     

Export rivalry,vertically-related markets,and optimal public ownership policy

This paper considers the optimal public ownership policy of an upstream firm which competes with a foreign private rival. Both firms supply a produced input to the domestic and foreign downstream firms that compete in an export market. The paper shows that complete privatization of the domestic upstream firm is never optimal. It will likely be fully nationalized if its market share is high, the domestic downstream firms' market share is low, and the total number of firms in the downstream is large. Simulation results reveal that the public firm's optimal profit margin may be negative and that the government ownership level may exhibit a reswitching phenomenon as the number of domestic downstream firms keeps growing. The paper sheds light on the possibility of using government ownership policy as a pseudo-trade and industrial policy.     

Do corporate governance mechanisms affect cash dividends? An empirical investigation of UK firms

The study examines whether corporate governance mechanisms and the compliance with good governance practice are related to cash dividends. In particular, the study assesses the effect of institutional ownership and board structure on the decision to pay cash dividends. A study on UK firms is interesting because firms are expected to voluntarily structure governance mechanisms based on their own needs. We find that institutional owners positively affect cash dividend payments, suggesting that UK institutions are effective in forcing firms to disgorge cash. There is limited evidence that independent directors affect the cash dividends. The results also show that firm specifics affect the cash dividends, namely, business risk, firm size, and leverage ratio. The results are consistent across several robustness checks.     

Ownership structure,corporate governance,and enterprise performance: Empirical results for ukraine

This paper examines the effect of ownership structure on corporate governance and performance of privatized enterprises in transition. The data are taken from a survey conducted in 2001 on 202 medium and large firms in Ukraine for the period 1998–2000. The ownership structure is measured by the percentage of shares held by each type of owner (state, managers, workers, Ukrainian concentrated outsiders, foreign concentrated owners, and stake-holding shareholders). Performance is measured by sales per employee. Regression analysis is used to test the hypothesis that concentrated outside ownership influences performance positively and to detect non-linear effects of ownership variables on performance. In contrast, with important previous studies on enterprise restructuring in Ukraine [Estrin and Rosevear, 1999], significant ownership effects on performance are found. Insider ownership (being a special case of stakeholding ownership) is found to have a significant non-linear effect on performance—positive within a lower range but negative from a threshold close to majority ownership onwards. In general, Ukrainian outside owners do not have a significant effect on performance. However, stakeholding ownership by customers affect sale prices and performance negatively. The most robust results are obtained for the effects of concentrated foreign ownership, both for levels of the respective variables in each year and for changes from one year to the other. The impact of foreign ownership on performance is significantly non-linear: its effect is positive only up to a level that falls short of majority ownership. It is concluded that this non-linearity is due to an institutional environment still adverse to foreign direct investment.Support from Alexander-von-Humboldt Foundation is gratefully acknowledged.