1. Introduction
Russian problems
§ Continuing lack of investment and restructuring in the corporate sector
§ Russian’s firms output, profitability, and cost efficiency is very low
§ Domestic investment in Russian fall
§ Russian receive the least foreign direct investment
§ Wages left unpaid, fiscal obligations unfulfilled, barter based transaction
§ Lack of credible investor protection
§ Why the construction of the institutional apparatus required
o Ensuring payments and investor protection in Russian
o Has proved to be such an intractable problem for so long
o Despite the country’s having received the best available advice and millions of dollars in foreign aid.
2. What happens when manager are owners
No external monitoring should be needed in an enterprise wholly owned by those who:
§ Initiate and implement decision
§ Provide the financing
§ Bear the residual risks
Problem of corporate Governance in Russia
§ Not limited in protecting minority shareholders
§ Involving insufficient incentives
o Owner-managers with the short time horizon
§ expected gain from increasing firm’s value and share application less than what they can obtain by stripping asset
o Maximizing value is reasonable long term analyze
§ Value can be analyzed through the sale of the ownership rights in enterprises
o Owners have been more inclined to withdraw cash (illegally)
3. Regional governments exert influence
§ Regional governments
o Maintain the operations of important local workforce
o Have a strong influence over the actions of key enterprises
§ Cash-flow diversion
§ taxable revenues reduce regional governments then collect revenues and control it
4. Barter and arrears as tools of control
Barter is a nonpayment and non cash settlement (exchange goods)
§ Useful instrument of enterprise control for both regional government and insiders
§ Preferential tax treatment
§ “discount” on utility bills
§ preferences in public procurement
§ Intended to prevent companies from shutting down
§ and laying off employees
5. Need for selective ownership transformation
o Three critical problems in relying upon bankruptcy procedures to initiate ownership transformation:
§ Creditor coordination is difficult to sustain
§ The capacity of the judicial system is limited
§ Bankruptcy is disruptive
Dilemmas on ownership mechanism
§ Simultaneous conversion of debt to shares and the sale of the resulting shares can be accomplished only if there is only a priori investor interest in the share purchase
§ If the investor interest is needed before a conversion can take place, this will preclude a competitive auction
An ownership transformation would accomplish three necessary reforms:
§ It would transfer a cash payment to the regional authorities
§ If followed up with a coherent program of supporting social reforms, it would allow coalitions of outside investors to dilute the ownership of insiders
§ It followed up with a coherent program of supporting social reforms
These approaches to corporate takeovers may be objected to on the grounds:
§ Ownership transformation is an easy exit for managers, but it is notOwnership transformation would be applied only to steps debt
Rabu, 06 Februari 2008
Stakeholders, Governance, and the Russian Enterprise Dilemma
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