Ownership and Corporate Governance: Evidence from the Czech Republic

22 Pages Posted: 8 Aug 1997

See all articles by Stijn Claessens

Stijn Claessens

Bank for International Settlements (BIS)

Simeon Djankov

London School of Economics & Political Science (LSE); Peter G. Peterson Institute for International Economics

Gerhard Pohl

World Bank

Date Written: March 1997

Abstract

The Czech Republic's mass-privatization scheme improved the management of privatized firms by concentrating ownership. And contrary to expectations, banks with an (indirect) equity stake in a privatized firm have a positive influence on the firm's corporate governance.

The Czech Republic's mass-privatization scheme changed the governance of many firms in a short time. Claessens, Djankov, and Pohl 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.

This paper - a joint product of the Office of the Regional Vice President, East Asia and Pacific, and the Finance and Private Sector Development Division Division, Europe and Central Asia, and Middle East and North Africa Technical Department - was presented at the International Symposium on Capital Markets and Enterprise Reform in Beijing, November 8-9, 1996.

JEL Classification: F29

Suggested Citation

Claessens, Stijn and Djankov, Simeon and Pohl, Gerhard, Ownership and Corporate Governance: Evidence from the Czech Republic (March 1997). World Bank Policy Research Working Paper No. 1737. Available at SSRN: https://ssrn.com/abstract=11074

Stijn Claessens (Contact Author)

Bank for International Settlements (BIS) ( email )

Centralbahnplatz 2
CH-4002 Basel
Switzerland

Simeon Djankov

London School of Economics & Political Science (LSE) ( email )

Houghton Street
London, WC2A 2AE
United Kingdom

Peter G. Peterson Institute for International Economics ( email )

1750 Massachusetts Avenue, NW
Washington, DC 20036
United States

Gerhard Pohl

World Bank ( email )

1818 H Street, N.W.
Financial Sector Development
Washington, DC 20433
United States
202-473-2979 (Phone)
202-522-0005 (Fax)

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