ATMs across the country and issued 2.7 million payment cards by early 2005. It was also the first bank to offer transaction ATMs, at which customers could pay their bills or make transfers. Moreover, it has become the market leader in remote banking, offering services via phone, cell phone or internet. When Ceska Sporitelna introduced a new internet banking service in 2002, 70,000 Czech customers signed up for the new service during the first 2 months. By now, the service has about 800,000 users.

Foreign banks were also the first to speed up processing of loan applications. For instance, at the US-owned GE Capital Bank, decisions about loans to small and medium enterprises are made within 2 days. Ceska Sporitelna guarantees the issuance of any debit card within 6 days from the filing of the application. HVB Bank, another foreign-owned bank, offers its corporate clients a software package that allows internet banking with multiple banks, domestic and international transactions, and multiple approval procedures of transactions within the company via electronic signatures, even if one of the approvers is located abroad. These changes suggest that opening services sectors to foreign entry have significantly changed the nature of the services sectors in the Czech Republic.

# **_3.3 Firms’ Perceptions of the Effects of Services Reform_**

Consistent with the anecdotal evidence, Czech managers exhibit very positive views of services sector reforms in their country. In 2004, the World Bank surveyed 350 Czech firms about their perceptions regarding different aspects of the services reform. Managers were asked whether they felt that the changes had a positive or a negative impact on their firms with regard to quality, prices, the range of services on offer and the availability of these services. As illustrated in Figure 4, the results of the survey portrayed a generally positive view of services reform. The share of positive perceptions ranged from 55% of the respondents when asked about the quality of accounting and auditing services to 82% for telecommunications. With regards to the variety of products offered, the positive views of liberalization varied between 56% of respondents evaluating accounting and auditing services to 87% of respondents asked about telecommunications. The corresponding figures for the effect on services availability ranged from 47% in accounting and auditing to 80% in telecommunications.<sup>6</sup>

# **_3.4 Evidence of the Superior Performance of Foreign Services Providers_**

To shed more light on developments in services industries we take a closer look at services providers and explore the extent to which there exist systematic differences between domestic and foreign-owned firms with respect to a number of performance indicators between 1998 and 2003. We do so by estimating a simple model where _foreignit_ is a dummy variable taking on the value of one if the foreign ownership share in firm _i_ at time _t_ exceeded 10% and zero otherwise, _sizei_ captures the initial size of each company as measured by the logarithm of employment in 1998, the initial year of the sample, and Dj, Dt and Dreg are fixed effects for industries, years and regions. The model is estimated on services industries.

TABLE 1. Performance premiums of foreign services firms and foreign acquisition targets

|||Foreign<br>Premium|Post-Acq.<br>Premium|Pre- and Post-<br>Acq.<br>Premium|Difference Test<br>Pre/Post Acq.|
|---|---|---|---|---|---|
|Labor Productivity<br>(LogVal Addp.w.)|Foreign Premium<br>Pre-Acq. Period|0.758<sup>***</sup>|1.011<sup>***</sup>|1.078<sup>***</sup><br>0.621<sup>***</sup>|F=4.91<sup>**</sup>|
|Log Investment|Premium|1.004<sup>***</sup>|0.843<sup>***</sup>|0.880<sup>***</sup>||
|(Capital Growth)|Pre-Acq. Period|||0.594<sup>***</sup>|F=2.74<sup>*</sup>|
|Market Share|Premium|0.013<sup>***</sup>|0.016<sup>***</sup>|0.017<sup>***</sup>||
||Pre-Acq. Period|||0.009<sup>***</sup>|F=14.34<sup>***</sup>|

> 6 For exact wording of the survey questions, see Appendix B.

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