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Incentives and the Management of Enterprises in Economic Transition: Capital Markets Are Not Enough

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  • Mayhew, Ken
  • Seabright, Paul

Abstract

This article considers enterprise behavior during the process of restructuring in Eastern Europe. It is concerned with how to construct controls and incentives for efficient management behavior. By themselves, privatization and freely functioning capital markets (specifically markets for shares) will be inadequate to discipline inefficient management. Therefore the disciplines imposed by other stakeholders--creditors and the workforce--are also considered. After surveying the theoretical arguments underlying these issues, the article contrasts the progress of restructuring in Eastern Germany and Poland. It argues that the governments of former command economies will have to intervene actively to influence the future management of their enterprises. Meanwhile, whatever long-term outcomes emerge, in the short term failures of corporate control are in danger of resulting in highly perverse responses to orthodox macroeconomic policies. Copyright 1992 by Oxford University Press.

Suggested Citation

  • Mayhew, Ken & Seabright, Paul, 1992. "Incentives and the Management of Enterprises in Economic Transition: Capital Markets Are Not Enough," Oxford Review of Economic Policy, Oxford University Press and Oxford Review of Economic Policy Limited, vol. 8(1), pages 105-129, Spring.
    • Handle: RePEc:oup:oxford:v:8:y:1992:i:1:p:105-29
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    Cited by:

    1. Nunnenkamp, Peter, 1995. "The German model of corporate governance: Basic features, critical issues, and applicability to transition economies," Kiel Working Papers 713, Kiel Institute for the World Economy (IfW Kiel).
    2. Jean Tirole, 1994. "Western prudential regulation: assessment, and reflections on its application to Central and Eastern Europe1," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 2(2), pages 129-150, June.
    3. Irena Grosfeld, 1994. "Comparing Financial Systems. Problems of Information and Control in Economies in Transition," CASE Network Studies and Analyses 0026, CASE-Center for Social and Economic Research.
    4. Jérôme Sgard, 1995. "Recapitalisations des banques et aléa moral en Hongrie et en Pologne," Post-Print hal-03585854, HAL.
    5. Olivier Bouin, 1993. "La privatisation par coupons dans l’ex-Tchécoslovaquie : analyse du mécanisme d’enchères et de ses résultats," Post-Print halshs-01168370, HAL.
    6. Jérôme Sgard, 1995. "Recapitalisations des banques et aléa moral en Hongrie et en Pologne," SciencePo Working papers Main hal-03585854, HAL.
    7. Wendy Carlin & Colin Mayer, 1994. "The Treuhandanstalt: Privatization by State and Market," NBER Chapters, in: The Transition in Eastern Europe, Volume 2, Restructuring, pages 189-214, National Bureau of Economic Research, Inc.
    8. repec:hal:spmain:info:hdl:2441/8101 is not listed on IDEAS
    9. Schröder, Philipp J.H., 2000. "On Privatisation and Restructuring," MPRA Paper 89, University Library of Munich, Germany, revised 2006.
    10. repec:spo:wpmain:info:hdl:2441/8101 is not listed on IDEAS

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