Abstract
One of the central problems facing economic reformers in East-Central Europe and the former Soviet Union in the 1990s was the establishment of effective mechanisms of corporate governance for privatized enterprises. In the Czech Republic and Russia, which pursued mass privatization strategies, new financial intermediaries known as Investment Privatization Funds (IPFs) sprung up to address the problem of dispersed ownership and corporate governance. Subsequently, analysts have disagreed about the performance of IPFs as effective agents of enterprise restructuring. This paper's general purpose is to evaluate the debates on IPF performance and the evidence that has been collected in response to them. More specifically, it will address the question of whether, in a post-privatization environment, banks are likely to encourage enterprise restructuring when they hold both debt and equity in an enterprise. Its conclusion is that banks acting in such a dual role, despite significant structural impediments to their effectiveness as agents of restructuring, have demonstrated a positive influence on their portfolio firms. The key underpinnings of this positive influence appear to come from banks' differential access to unusually scarce capital and from the relative paucity of alternative investment opportunities in transition economies.
Each issue of the Chazen Web Journal recognizes a student paper for outstanding research in international business. This paper was the Chazen Paper for Issue I, Fall 2002.