Endogenous ownership structure:factors affecting the post-privatisation equity in largest Hungarian firms

Using a data set for the 162 largest Hungarian firms during the period of 1994-1999, this paper explores the determinants of equity shares held by both foreign investors and Hungarian corporations. Evidence is found for a post-privatisation evolution towards more homogeneous equity structures, where dominant categories of Hungarian and foreign owners aim at achieving controlling stakes. In addition, focusing on firm-level characteristics we find that exporting firms attract foreign owners who acquire controlling equity stakes. Similarly, firm-size measurements are positively associated with the presence of foreign investors. However, they are negatively associated with 100% foreign ownership, possibly because the marginal costs of acquiring additional equity are growing with the size of the assets. The results are interpreted within the framework of the existing theory. In particular, following Demsetz and Lehn (1985) and Demsetz and Villalonga (2001) we argue that equity should not be treated as an exogenous variable. As for specific determinants of equity levels, we focus on informational asymmetries and (unobserved) ownership-specific characteristics of foreign investors and Hungarian investors

Corporate governance in Russia: concept and reality

The national system of corporate governance as reflected in the norms and provisions required to raise external finance is a key component of the institutional set-up in any market economy. Such systems may have different configurations but they have one crucial commonality: the task of providing means that help to institutionalize, i.e., regulate according to certain established rules, economic conflict between investors in companies and managers, facilitate information flows, and procure a solid and cost-efficient foundation for the growth of publicly held corporations. In other words, corporate governance is responsible for reassuring individual investors that the money they invest in a public company will be handled with due care by the management of the company, so that the interests of investors are protected. Seen in this perspective, corporate governance presents itself as one of the fundamental institutes of modern Western democracy, acting as a guarantor of sustainable economic growth (Sullivan, 2002). In countries with a long-lasting tradition of private corporate management, reliable and functional corporate governance is taken pretty much for granted, which is obvious from the degree of public outrage and concern when the system misfires, as the cases of ENRON and Parmalat vividly illustrate