Corporate governance cycles during transition: a comparison of Russia and Slovenia

The governance life-cycle, is here defined as changes in ownership structure, and including both the identity of the major owner and ownership concentration. The cycle is marked by key events and phases including start-up, initial growth, mature growth, and possibly a crisis and restructuring stage or exit stage. The governance cycle for transitional countries reflects some specific characteristics – e.g. often privatization produces specific initial ownership structures, with an unusually high proportion of employee ownership. This was in fact the case both in Russia and in Slovenia. Subsequently pressures for restructuring produce strong impulses for ownership changes. There is limited possibility for external finance because of the embryonic development of the banking system and the capital markets during early transition. The governance cycle during transition is also influenced by other specific features of the institutional, cultural and economic environment in a country. The varying importance of these factors is expected to produce differences in key features of ownership cycles such as the speed and specific pattern at which particular ownership changes occur. To provide simple hypothesis tests, we use the enterprise data collected by REB (Russian Economic Barometer) for every second year over the period 1995-2003 and panel-data collected by the Institute for South Eastern Europe covering 1998-2003. The data enable various measures of ownership to be constructed (including the identity of the owners and ownership concentration). The empirical analysis covers the ownership cycle with emphasis on initial ownership and subsequent changes. The key method is to assemble a series of transition matrices showing both starting and final ownership configurations for sample enterprises and to simultaneously provide information on changes in concentration for the largest single owner. The findings show that in spite of important differences in institutional development, concerning the privatization process and the speed of the development of corporate governance institutions, we find that governance cycles are broadly similar in the two countries. Employee ownership is rapidly fading, but while both change to manager and non-financial domestic outsider ownership is typical for Russia, manager ownership seems not to be widespread in Slovenia. Instead change to financial outsiders in the form of Privatization Investment Funds is quite frequent in Slovenia. Foreign ownership, which is quite rare especially in Russia, is quite stable. The ownership diversification to employees and to some diversified external owners in the privatization process did not fit well to the low development of the institutional framework. As expected we observe a subsequent concentration of ownership on both managers, external domestic and foreign owners. JEL-codes: G3, J5, P2, P3