The Evolution of Corporate Governance and Firm Performance in Emerging Markets: The Case of Sellier and Bellot

68 Pages Posted: 26 Nov 2004

See all articles by Tomas Jandik

Tomas Jandik

University of Arkansas - Sam M. Walton College of Business

Craig G. Rennie

University of Arkansas - Sam M. Walton College of Business

Date Written: November 2004

Abstract

This paper investigates the evolution of corporate governance and firm performance in emerging markets. It focuses on Czech ammunition manufacturer Sellier and Bellot (S&B) following voucher privatization in 1993. Exogenously imposed diffuse ownership, combined with legal, capital market, and accounting defi ciencies, contributed to poor corporate governance and weak fi rm performance. It also impeded corporate governance change toward optimal concentrated ownership structure. Five years of dismal accounting and stock return performance, default, and a failed attempt to sell the company passed before a single blockholder acquired control, installed new management, and dramatically improved profi tability. This study is one of the fi rst todescribe the path of evolution from a suboptimal to an optimal governance structure. Turnaround was accomplished through the adoption of monitoring and incentive mechanisms known to mitigate owner-manager agency confl icts in developed countries. The S&B experience has policy implications for emerging countries undergoing mass privatization.

Note: Previously titled "Legal Systems, Ownership Concentration, and Corporate Governance at Sellier and Bellot"

Keywords: Corporate governance, Ownership structure, Capital markets, Corporation and securities law, Emerging markets, Czech Republic

JEL Classification: G32, G34, K22

Suggested Citation

Jandik, Tomas and Rennie, Craig G., The Evolution of Corporate Governance and Firm Performance in Emerging Markets: The Case of Sellier and Bellot (November 2004). ECGI - Finance Working Paper No. 59/2004. Available at SSRN: https://ssrn.com/abstract=625902 or http://dx.doi.org/10.2139/ssrn.625902

Tomas Jandik (Contact Author)

University of Arkansas - Sam M. Walton College of Business ( email )

WCOB 302
Fayetteville, AR 72701
United States
479-575-6147 (Phone)

Craig G. Rennie

University of Arkansas - Sam M. Walton College of Business ( email )

WCOB 302
1 University of Arkansas
Fayetteville, AR 72701
United States
479-575-7496 (Phone)
479-575-8407 (Fax)

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