The existing data of the Leontieff Center (St.Petersburg) allow us to speak about higher level of efficiency of the privatized enterprises in the Russian industry. The following traits can be identified on the basis of the data: (1) “deeply-privatized enterprises” are more efficient than “medium-privatized” and both groups of privatized enterprises are more efficient than the public ones; (2) the efficiency indicators of the enterprises privatized in 1993 are higher than those of the enterprises which underwent this change in 1994-1995. If we presume that the degree of concentration of the stock ownership is higher at the enterprises which became involved in the privatization process earlier (which is general corresponds to the trend observed all over Russia), then, with a certain degree of presumption, we can maintain that the enterprises with the concentrated ownership are more efficient.
The similar conclusions were published by the Ministry for State Property of the Russian Federation in 1998: the direct correlation between the state share in authorized capital of joint-stock company (from 25 up to 50 %) and worse management and financial situation of joint-stock company. To the certain extend it is connected to reluctance of the private shareholders to conduct reorganization and to invest in such joint-stock companies in a situation, when the property rights to a significant block of the shares remain as a matter of fact uncertain.
At the same time adaptation of firm to market demands is carried out the more vigorous, if property rights are well protected in general and if the principle of soft budget constraints is non-typical for the current economic policy.
(5) The advantages of privatized companies become more and more clear in accordance with a concentration of ownership by the "external" private holders. New private firms are the most effective. Among privatized companies the firms, in which the strong "external" control has been installed, find out best outcomes.
The study of data on the turnover of the top managers of the Czech firms may testify: the chiefs, which for the first time were invited by the "external" holders, acted much more effective, than chiefs appointed by state entities (Classens, Djankov, 1999).
Just the appearance of the "external" owners adds dynamism to the post-socialist economy (Carlin, Landesmann, 1997). At the same time (as well as for evaluation of correlation between ownership and efficiency) there are some studies, in which ownership by outside local investors is not significantly correlated with restructuring (Djankov, 1999). It is accepted also to consider that the "ideal" form of corporate governance is ensured with the companies, owned by the foreign holders (Brada, Singh, 1999, p.14). At the same time foreign ownership is positively associated with enterprise restructuring at high ownership levels - above 30 % of shares (Djankov, 1999).
In this context the most important point to discuss is the following: could we assert that it was exactly ownership concentration in a post–privatization period which generated the certain advantages to effective corporate governance and corporate performance
2.3. Interrelationship between ownership concentration and effective corporate governance
In general the present process of the ownership redistribution in Russia is characterized by two parallel basic trends: strengthening of the managers (in their capacity as shareholders or as persons who exercise real control over the enterprise) and the growing “invasion” of outsiders. All this redistribution is taking place against the background of the further concentration of property.
Of course any quantitative estimate would be rather artificial if you take into account the fact that in Russia among the formally external shareholders of the companies there is a considerable number of those which are directly or indirectly owned by the managers of this particular company or are friendly towards them. It’s indirectly confirmed by the fact that among the holders of large or controlling stakes a considerable proportion consists of the commercial enterprises and holdings. In practice such commercial enterprises or holdings are often nothing but companies set up by the management as trade intermediaries and created for the mobilization of the company’s profits which are being used, among others, for the buying out of the company’s shares during the privatization and at the secondary market. Similar mechanisms are well known, for example, in Slovenia and other countries.
As regards the foreign investors (both in the typical and largest companies) the major problem here is to identify the real origin of investment. In many cases it’s in reality the repatriation of the capital which was taken out of Russia.
If the concentration of ownership takes place then, sooner or later (as the legislative basis develops), a relatively transparent system of corporate control is shaped with the predominant “cores” of shareholders. In this connection the role of the concentrated ownership in upgrading the efficiency of the corporation and corporate governance during the post-privatization period becomes the issue of the utmost importance.
Very often it’s exactly the concentrated ownership (concentrated control) in different forms which is indicated as the major economic mechanism of the corporate control. It provides the basis for the investors’ real influence, which by itself strengthens the legal protection and allows to minimize the need for seeking solutions through courts. The majority of the transition economies were oriented towards the concentrated ownership model: with different degree of success, legislatively or ideologically, through the application of mandatory schemes or spontaneously. At the hypothetical level it was presumed that the corporate relationship model based on a more concentrated structure of ownership and insignificant role of insiders (both employees and managers) would also stimulate the financial progress and economic efficiency. This hypothesis established the link between the corporate governance (control) model, efficiency of such governance and efficiency of the enterprise itself.
The theory doesn’t give any single answer to this question. According to some existing evaluations the results of the study of correlation between the concentration of ownership, control over the management and the growth of the prices of company’s stocks even in the countries with the stable market economy are very ambiguous (Gray, Hanson, 1994). Some of them confirm that the concentration of ownership results in the better operation of corporations in the developed branches with relatively simple technologies. The other researches who study the presumed cause and effect relationships put forward the hypothesis that the structure of ownership is rather a dependent than independent variable. There is also a supposition that in some branches of industry the highly concentrated ownership is useful while in the others vice versa but the market would always push the company towards the optimum solution. There are also certain nuances, which depend upon the size of a corporation (Demsetz, Lehn, 1985).
At the same time there are drawbacks to the concentration of ownership in a corporation as well which we connected to the potential conflicts of interest between the large and small shareholders (the problem of common and private interest described in literature). Thus we can hardly draw any unambiguous conclusion especially as regards the unstable transitional economy.
As the practice demonstrated the results of this ideology implementation were extremely controversial and the preliminary assessments can’t be true at the generalization level.
As an example it is possible to consider a situation in Czech Republic, leaning for objectivity on the contradictory judgements. This example especially is indicative, that Czech Republic was traditionally considered as the positive standard (sample) of effective privatization.
According to the data of the Czech Fund of National Property, in the course of 1995 it became increasingly obvious that the conclusion of voucher privatization had to be followed relatively quickly by a process of a further massive redistribution of property, resulting in a substantially greater concentration of share capital. This process was started in a spontaneous way, independently of state authorities…Its initiators were several IPFs and privet banks. Their objective was to obtain major financial interests in promising companies from small investors, and to sell them on to other, mostly foreign, investors (Bohm, 1996, p. 143-144). Those who expected that the new shareholders (mainly IPF representatives appeared on boards of directors and the supervisory boards of privatized companies) would immediately begin to perform their functions as owners were probably disappointed. IPFs and all other shareholders whose existence originated in the voucher privatization understandably behaved in most cases as the passive investors. As a rule, they were mainly interested in selling their shares as profitably as possible, and in obtaining money by transactions on the capital market. Such shareholders participated to a relatively small extent in the creation of active business concepts of companies.
Obviously, as concentration of shares for the purposes of resale, and passive behavior of majority (dominant) shareholders hardly promote increase of a management efficiency and strategic development in joint-stock company.
The data from the Czech Ministry of Finance also shows a number of ways of «handling» the property of IPFs and investment trusts the consequences of which lead to a decrease in property value and detriment to both shareholders and unit holders. These ways of assets «handling» are combined in practice and are very difficult to demonstrate and to penalize. The practices include the following (for details see OECD, 1998, pp.118-124): formal and informal interconnection of several companies, large conventional fines, purchases of worthless shares, concluding unfavorable options and futures contracts, transfer of the advances for purchase of securities, long settlement periods for securities sold, loans of securities, poorly drown-up agreements on the transfer of securities, irrational movements of securities, trading in securities on ridiculous prices, disadvantageous purchases and sales of securities, trading by management on its own account, concentration of considerable amounts of cash in the accounts of IPFs in banks, failure to comply with limits for restricting and spreading risks, different methods of removing money from the company («tunneling» into companies) etc.
The reverse point of view also exists, reinforced by statistical analysis. The sample of 706 Czech enterprises activity in 1991-1995 shows that the concentrated ownership results in increase of a market value of the enterprise and, therefore, to higher profitability. The authors conclude availability of positive influence, which renders on the enterprise its main bank through indirect control of the investment fund (Claessens, Djankov, Pohl, 1996). Theoretically indirect confirmation of such point of view is the world-round tendency of 70-90s towards reduction of number of individual shareholders and growth of the institutional ones (at least until financial crisis of 1997).
The mentioned data of the Leontieff Center (St.Petersburg) allow us to speak about higher level of efficiency of the privatized enterprises in the Russian industry. If we presume that the degree of concentration of the stock ownership is higher at the enterprises which became involved in the privatization process earlier (which is general corresponds to the trend observed all over Russia), then, with a certain degree of presumption, we can maintain that the enterprises with the concentrated ownership are more efficient.
Another indirect confirmation of the fact that the enterprises with the highly-concentrated ownership are more efficient can be found in the comparative figures supplied by a number of researchers representing the operation of enterprises with different types of predominant owners in 1995-1997. In many cases the best economic performance was demonstrated by those small and medium enterprises where the ownership was concentrated in the hands of managers and by large enterprises with the ownership in the hands of certain types of outsiders, although, there are the figures showing the opposite situation (See Aukutsionek, Kapeliushnikov, Zhukov, 1998; Kлепач, Кузнецов, Крючкова, 1996; Earl, Estrin, Leshchenko, 1995).
The numerous facts when the majority shareholders (both managers and outsiders) acted against the interests of their corporations development are also well-known. There is an almost standard set of accusations which can be equally used against the owners in other transition countries: desire to control only the financial flows and export transactions; unjustified splitting of an enterprise, selling off or leasing out the assets to the detriment of shareholders and the enterprise itself; free rider’s attitude during the search for strategic solutions; treatment of their stake as an object of speculation or using it as a collateral against the loans etc. It was especially relevant in case of the financial institutions which became the stockholders in the course of and after privatization.
Among the explanations of this situation, at least in respect of Russia, the following considerations may be mentioned. If the “amorphous” system of corporate control (that is, the absence of any visible signs of control even if there is an informal one) is preserved that may bring about the loss of objectives as regards the medium-term development and the lack of investors. The problem is that with the amorphous system (even if the real control is concentrated in someone’s hands) both the responsibility for the current situation in the corporation and the control on the part of shareholders over those who bear this responsibility simply disappear. At the same time there are no external mechanisms of control as well (legal and market) in order to provide for such a responsibility. The well-known mechanisms of the investors’ rights protection, which are so important in order to attract investment, are also non-existent.
Correspondingly, as regards the further institutional changes the problem of the “efficient (responsible) owner” who during the last years became one of the mythological figures of many official programs and concepts in Russia needs to be resolved.
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