Voucher Privatization, Corporate Control and the Cost of Capital: An Analysis of the Czech Privatization Programme

Voucher privatization programmes have been criticized for leading to excessively dispersed ownership and hence failure of control and insufficient corporate governance. We analyse the results of the five auction rounds of the Czech privatization programme and subsequent stock market developments. Contrary to prior fears, dominant investors did emerge in most cases. We then show that the presence of a dominant investor led to an above average share price after correcting for all publicly known differences between the various enterprises. We use information contained in the price dynamics of the auction rounds to show that this price difference was not due to inside information available to dominant investors only, but also to the anticipation of better governance in the presence of dominant investors. This led to a lower cost of capital (higher share price).