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Capital markets, financial intermediaries, and corporate governance : an empirical assessment of the top ten voucher funds in the Czech Republic

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  • Egerer, Roland

Abstract

Voucher privatization was expected to result in widely dispersed ownership with little effect on firms'governance. But in the first wave of privatization, more than 70 percent of Czech vouchers went to investment funds and the 10 largest Czech and Slovak investment funds (surveyed for this study) acquired roughly half of all voucher points. And the large funds can influence corporate governance. Also, a fund's actual role depends on the sponsoring institution's or individual's incentives structure. Banks and investment funds lack the skills and incentives to initiate corporate restructuring, but funds with significant stakes can readily compare managers'performance and remove underperforming executives and can counterbalance the control of management and employees. Funds can also effectively monitor firms on behalf of groups of small investors. After privatization, most Czech assets are now owned by funds affiliated with banks. In market economies, a close relationship between banks and enterprises can be seen as a conflict of interest. In transition economies, banks and funds have spontaneously developed a relationship as a way for banks to get information about firm performance. Bank-sponsored funds reduce banks'information and monitoring costs and hence lending risk and costs. They also facilitate the informal workout of problem loans.

Suggested Citation

  • Egerer, Roland, 1995. "Capital markets, financial intermediaries, and corporate governance : an empirical assessment of the top ten voucher funds in the Czech Republic," Policy Research Working Paper Series 1555, The World Bank.
    • Handle: RePEc:wbk:wbrwps:1555
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    References listed on IDEAS

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    Cited by:

    1. Buch, Claudia M. & Heinrich, Ralph P., 1997. "The end of the Czech miracle? Currency crisis reveals need for institutional reforms," Kiel Discussion Papers 301, Kiel Institute for the World Economy (IfW Kiel).
    2. Caroline Vincensini & Petia Koleva, 2000. "Les trajectoires économiques nationales dans la transition post-soviétique. Etude comparée des fonds de privatisation tchèques et bulgares," Post-Print hal-03462398, HAL.
    3. Drakos, Konstantinos & Giannakopoulos, Nicholas, 2011. "On the determinants of credit rationing: Firm-level evidence from transition countries," Journal of International Money and Finance, Elsevier, vol. 30(8), pages 1773-1790.

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