Privatization and Corporate Control in the Czech Republic

Abstract

Czech privatization Vladimir Dlouhý and Jan Mládek In 1990 Czechoslovakia was highly centralized. We examine the subsequent programme of rapid privatization, and assess its success in stimulating both a secondary market and adequate corporate governance. Privatization relied not just on vouchers but on three other channels: restitution of physical assets to former owners; small enterprise privatization; and sale of large enterprises. All three fostered political support for privatization and transition in general. Two waves of voucher privatization have also disposed of nearly half the state-owned enterprises. Initially, incumbent managers supported vouchers, expecting diffuse ownership to weaken corporate control. However, the success of Investment Privatization Funds in concentrating ownership made managers more critical of the second voucher wave. Despite trying to create a US-style capital market, the prominence of banks as parents of IPFs has led to something much closer to German 'corporate banking ownership'. This success may be hard for other countries to emulate. Czechoslovakia enjoyed three key advantages: a tradition of sound banking, an endowment of quality enterprises to be privatized, and proximity to the German market.