The Evolution of Corporate Governance and Firm Performance in Emerging Markets: The Case of Sellier and Bellot
68 Pages Posted: 26 Nov 2004
Date Written: November 2004
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: Suggested Citation