Privatization programs, ownership structures, and market development: The role of country characteristics on defining corporate governance standards.

摘要

World Bank reports from the 1990s show that "governments have chosen privatization because of a growing recognition that ownership matters in improving the performance of an enterprise" (World Bank report, 1992). It is now a generally-accepted fact that ownership does matter. However, ownership is not the only factor that matters. Economic policies and regulations, as well as well-functioning legal systems and administrative public institutions (e.g. institutions enforcing property rights, regulating capital markets, and limiting natural monopolies) matter as much, if not more.1;Privatization has raised corporate governance concerns in sectors that were previously owned and controlled by the state, but where now private owners go to the market to seek financing. Unlike the state that could afford to fund the operations of its enterprises across all sectors, the new private ownership faces the challenge of raising capital in the open market, both from large and small investors. Thus in countries where investments and ownership are not protected by enforceable laws, the transfer of ownership to the private sector, if done, is almost impossible to succeed in its objectives (e.g. to create efficiency, introduce competition, and promote dispersed ownership to develop capital markets while protecting small investors). Additionally, where capital markets are not regulated, public trading is destined to fail.;Past experiences show that privatization works best if it is part of a large reform program; privatization is only one part of a broader agenda of private-sector development (Summers, 1998). Shift of ownership should not get far ahead of the efforts to build the institutional foundation and capacity necessary to sustain the private-market development.;This study investigates why firms in different countries may adopt and implement better governance measures than others (i.e. what incentives do they receive or perceive, from regulators or the market?). Additionally, it explains how countries (operating in the framework of their ill- or well-defined rules and regulations as well as their poorly- or well-functioning public institutions) matter for improving corporate governance practices in a sample of firms in the MENA region. We find that banks, the type of the largest shareholder (especially family and state ownerships), and the need for external financing matter most for improving corporate governance standards. However, laws, enforcement, and the size of firms are found to have no statistical significance in our sample.;On the one hand we recognize that banks play a more-important role in economies than non-bank corporations and, therefore, we expect their statistical significance. In addition, the MENA region is known to be dominated by state- and family-owned businesses; thus, both are critical for the region's economic development. On the other hand, though, the effectiveness of legal systems and efficiency of law enforcement are expected to have a significant effect on shareholder protection and firm's overall governance standards. One explanation for their insignificance might be due to the fact that firms are accustomed to operating in weak legal environment; thus, any improvement in their governance practices is not correlated to legal systems but rather to internally-adopted measures.;Finally, it is important to emphasize the timing of this study due to MENA's increasing role in the world economy as well as the critical role the state and the private sector (dominated by families) play in instituting better corporate governance practices that can help building and enlarging the region's capital markets, attract foreign investments, and achieve successful market liberalization and reform programs.