Privatization and Corporate Governance in Transition Countries: Beyond the Principal-Agent Model

Abstract

Privatization appears to be a success story in transition countries when assessed with quantitative criteria. This is not the whole story, however. Privatization has met various difficulties and is still plagued by two basic unresolved issues, corporate governance and residual state property in privatized enterprises, both indicating a partial qualitative failure. Therefore one cannot avoid looking at some theoretical implications of the observed results of privatization as regards management coalitions, the blurred dividing line between shareholders and stakeholders, financial-industrial groups, interlocking directorates, the violation of shareholders’ rights and the corrupt redistribution of capital and property rights. Could it be that the standard approach to privatization, in particular the principal-agent model, has been too simplistic or even inaccurate for transition countries? Both empirical evidence and limitations of the mainstream approach to privatization suggest a renewed analysis at the dawn of the second stage of privatization now starting in transition countries.