Ownership Concentration and Performance in Czech Companies

Ashot Baghdasarian

Date of defense: April 18, 2003

Dissertation Committee:
Prof. RNDr. Jan Hanousek, CSc. (CERGE-EI, Chair)
Prof. Phillipe Aghion (Harvard University)
Doc. Ing. Evzen Kocenda, Ph.D. (CERGE-EI)
Prof. Randall Filer, Ph.D. (CERGE-EI)
Ing. Lubomír Lízal, Ph.D. (CERGE-EI)

Abstract:
Czech mass privatization program was and is frequently criticized for inefficient corporate ownership structures that have emerged after two waves of voucher scheme. The importance of this discussion is far beyond only the boundaries of Czech economic practice, as it serves somewhat an example for many economies as how to proceed with their own privatization models. This work is intended to analyze diverse peculiarities of voucher privatization program implemented in Czech Republic. After detailed theoretical account corporate governance principles and privatization, descriptive analysis of privatization process, review of legislative and regulatory procedures, we proceed to the main part - empirical investigation by utilizing large panel of data on manufacturing firms for the period of 1996-1997. Results show significant and positive ownership-performance relationship in the Czech economy. In addition, we are able to discriminate among different groups of investors and investigate separately their role in firm monitoring. Results indicate that ownership by foreign investors, local strategic investors, and bank-sponsored investment funds have statistically significant impact on enterprise performance. Concentrated ownership by other groups, such as state, individuals, banks, non-bank sponsored funds do not improve performance indicators of firms in question. The model and empirical specification developed allows also for testing for the effect of non-linearity. It is shown that for certain groups of investors the non-linearity is present and statistically significant. This finding helps to explain such an important phenomena in Czech economy as the role and important differences in the position of portfolio and investment companies, legislative definitions of controlling owners, their effect on shareholders incentives, and "profit tunneling".