# Introduction

Much has been written on the need for more effective corporate governance of firms in Eastern-Europe. Various schemes for privatizing state enterprises have been put forward to achieve this goal. The Czechoslovakia mass privatization program, implemented through a voucher scheme with competitive bidding, was a bold step at changing the ownership and governance of a large part of the economy. As such, it represents a clear test case of one approach and other countries may benefit from any lessons one can draw from it.

At the time, much skepticism was voiced about mass privatization: it would lead to diffuse ownership and no effective corporate governance would result. Innovative forces, however, led to the emergence of investment funds which collected much of the imdividuals' voucher points, leading to a much more concentrated shareholding. The expectation has since been that this concentrated ownership will lead to improved corporate governance. The juxy is still out, however. So far, only limited and largely anecdotal evidence is available on the impact investment funds have had on the way firms are managed (see Anderson, 1994 and Mejstrik et al., 1994 for some examples). Too little time has passed and too many shocks have octurred (e.g., the split of the Czech and Slovak Republics) to (yet) expect to be able to find a discemable effect of changes in corporate governance on measures of actual firm performance.

An altex -ative approach is to investigate whether firms which ended up with more concentrated ownership sell for higher prices, either in the last voucher round or in the secondary market since then. In a forward-looking financial market, one can expect prices to incorporate the effects of better ownership on future firm performance. Put differently, one would expect That two firms with different share-holding structures, but otherwise identical, to trade at different prices, with the firm with a more concentrated ownership and presumably better corporate governance at a higher price. On a cross-sectional basis, ownership structure may thus be a significant factor in explaining (relative) share prices.

This paper explores this line of reasoning. It relates various indicators of the natre and concentration of ownership to the last bidding round prices and the secondary prices on the Prague Stock Exchange and the so-called RM-system. The empirical results support the hypothesis that concentration and prices are positively associated on a cross-sectional basis. Controlling for a number of firm and sector specific-variables, I find that the higher the equity share of strategic owners and the lower the dispersion of ownership, the higher the price. While many small owners and high dispersion make it easier for any single investor to establish effective control, such control is, however, not always associated with higher prices. It appears that only absolute control-majority share ownership-results in higher prices, perhaps a reflection of legal and corporate restrictions aimed at protecting minority shareholders and the difficulty in collecting proxy votes, or of conflicts of interests as some commercial banks are both managers of investment funds and creditors of individual firms.

The rest of the paper is organized as follows. First, I discuss the voucher scheme and resulting prices and ownership patterns, as well as the other firm-data I use. Next, I describe the link between ownership patterns and prices and develop the basic model to be tested. The third section then presents the results, while the conclusions are su ed in the last section.