Ownership structure and firm performance in transition countries : the case of European Union new members

Our study focuses on the EU new members, which are transition countries. After a long period of privatization and restructuring, the ownership structure of firms in these countries takes a clearer form. This evolution of ownership structure has a considerable effect on firm performance. In using data from listed companies in the stock market of these countries, we study the relationship under two aspects: the structure and the nature of shareholders. Unlike studies undertaken about firms in developed countries, our sample includes firms with a foreign ownership majority. Our results, in contradiction with alignment of interest theory, rather corroborate the entrenchment theory. We find a negative relationship between the concentrated ownership and firm performance. Nevertheless, a concentrated ownership in the hands of foreign investors increases performance of firms. We also find that the manager-owners have a positive influence on the firm performance. Given that the financial markets in these countries are not very liquid and that the ownership structure is sufficiently stable after significant changes in the middle of the 1990s, the endogeneity problem described by Demsetz (1985, 2001) does not arise in our studies.