14 sponsored funds, the NPF, local and foreign strategic investors. We also continue to include the Herfindahl index to control for ownership concentration effects.

Table 2, regression iii reports the results for the panel regressions. There continues to be evidence for a signaling value from general bank-sponsored fund ownership as the coefficient for bank-sponsored fund ownership remains significantly positive for the Tobin's Q regression. The coefficient for local strategic ownership (profitability-regression) remains also significantly positive. We find no support for the conflicts of interest hypothesis as the coefficient for the main-bank ownership dummy is not negative, but rather significantly positive for the Tobin's Q regression and insignificantly positive for the profitability regression. 1<sup>7</sup> Minority shareholders appear thus to value the role of banks. There is therefore evidence of both signaling valuethrough bank-sponsored funds owning part of a firm-and of a useful monitoring role by main banks. While there may be conflicts of interest, they are not strong enough to cause ownership by a main bank-sponsored-fund to be associated with lower Tobin's Q or profitability; quite the opposite, the coefficients are (significantly) positive. The year-by-year cross-section regressions (not reported) suggest that these positive effects are increasing over time as the coefficients increase in value and significance. This increasing effect corroborates Claessens (1997) who finds that, while voucher prices in the Czech and Slovak Republics were relatively lower when a bank-sponsored fund had a relatively large equity stake, this effect was not found for the later secondary market prices in the Czech Republic.

To further test the importance of general monitoring benefits versus conflicts of interest costs, we also ran regressions where included a dummy when any ownership stake was more than 20% (ratios between 15% and 30% led to similar results) as all types of blockholders can presumably monitor firms (not reported). This general blockholder dummy is highly correlated with the Herfindahl index-but not with the main-bank ownership dummy-and is in general not significant in either the valuation or profitability regression. Including it, however, does not affect the significantly positive coefficient for the main-bank ownership dummy in the valuation regression and the insignificantly positive coefficient in the profitability regression. The role of banks in corporate governance appears thus to be special, as other blockholders do not have these positive effects.

17. The insignificance of the main-bank dummy in the profitability regression and its significance in the valuation regression could sugges **t** hat there is some dilution of earnings through main-bank sponsored fund ownership, but that the market nevertheless values bank involvement. In the OLS regressions (Table A3), however, the coefficients for the main-bank dummy are significant for both Tobin's Q and profitability (at the 90% level in the profitability regression). And for the 1995 only cross-section regressions (not reported), both bank-sponsored fund ownership and main-bank dummy are significantly positive for Tobin's Q and profitability (at the 90% level in case of the profitability regression). This sugges **t** hat indirect bank ownership is not only valued by the market, but also leads to improved firm performance.