Voucher privatization was expected to result in widely dispersed ownership with little effect on firms' governance. And the large funds can influence corporate governance. A fund's actual role depends on the sponsoring institution's or individual's incentive structure. Foreign bank-sponsored and nonbank funds are stronger corporate monitors than funds sponsored by domestic banks. Banks and investment funds lack the skills and incentives to initiate corporate restructuring, but funds with significant stakes can readily compare managers' performance and remove underperform-ing executives and can counterbalance the control of management and employees.
Funds can also effectively monitor firms on behalf of groups of small investors.
After privatization, most Czech assets are now owned by funds affiliated with banks. In market economies, a close relationship between banks and enterprises may be seen as a conflict of interest. Bank-sponsored funds reduce banks' information and monitoring costs and hence lending risk and costs. They also facilitate the informal workout of problem loans. The full report is available on our FTP server.