Investor Behavior in Mass Privatization: The Case of the Czech Voucher Scheme
Posted: 13 Jul 1998
Date Written: October 14, 1995
This paper examines the bidding behavior of investors who participated in the voucher scheme used to privatize 988 Czech enterprises. In the first round of the privatization scheme, the Czech authorities set a uniform price for all companies, creating a natural experiment for testing several hypotheses concerning the determinants of share demand in the voucher scheme. Share demand is expected to measure relative values of shares, a prediction supported by a positive and significant relation between share demand and stock market prices. Also, consistent with predictions regarding the determinants of value, we find that share demand is related to proxies for agency costs and the expected costs of financial distress. These findings are supported by other tests in which we use prices in the voucher scheme and stock market prices as alternative measures of relative values. Of particular interest is the finding that share demand is directly related to the percentage shares held by insiders; this result is relevant for the debate in former communist countries over whether privatization programs should restrict insider holdings. The investment performance of individuals does not differ significantly from the investment performance of institutional funds, suggesting that individuals did not transfer their investment points to funds unless they believed that funds were better able to assess the value of firms. The results suggest rational investor behavior, despite the absence of Czech financial markets for decades.
JEL Classification: G14
Suggested Citation: Suggested Citation