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Keywords Corporate governance, Investment funds, Transition management, Privatization, Czech Republic
Abstract This paper discusses the privatisation process in the Czech Republic and its influence on corporate governance. While in 1989 the private sector totaled less than 1 per cent of the GDP, at the end of 1996 more than 70 per cent of the GDP was produced by the private sector. Large-scale privatisation brought companies out of state ownership, but disperse ownership and lack of regulations created an extremely soft management environment. Since 1995 investment funds have started to reorganise their portfolio and more and more companies have undertaken the task of restructuralisation to become competitive. Though a considerable amount of data is still lacking, it can be concluded that the improvement in the profitability of the surveyed enterprises was due to improvements in corporate governance.
1. Introduction
In 1989 the former Czechoslovakia had one of the smallest private sectors in the communist world, employing only about 1.2 per cent of the labour force and producing a negligible fraction of the national output. Often cited as one of the major success stories of the transition in Eastern Europe, the Czech privatisation program resulted in almost 75 per cent of productive capacity being transferred to the private sector by the first quarter of 1995 (for preceding overview see Aghion et al (1994a) and Blanchard et al. (1991)). This is comprehensively captured by Table I.
Privatisation in the Czech Republic[1] was carried out under three programs:
(1) restitution;
(2) small-scale privatisation; and
(3) large-scale (or mass) privatisation.
This comprehensive privatisation program resulted in a remarkably high share of the gross domestic product (GDP) being eventually produced by the private sector. Table II compares the role of the private sector as a percentage share of the GDP in various Central European countries from 1990 to 1996.
Large-scale privatisation brought companies out of state ownership, but left them without proper management This was due to the fact that shares in legally and newly created companies belonged to investment funds or banks, or were spread among numerous small shareholders. The interest of investment funds in increasing the net asset value of the shares on one side and the lack of power of small shareholders on the other created...