Research Results

Disclosure is a cornerstone of modern securities regulation but, at the level of the European Union, there are few Directives that are devoted to creating disclosure standards. A notable exception is the Large Holdings Directive (88/627/EEC) that provides for the disclosure of blocks of voting rights in excess of 10%.

The focus of the first part of the project was to assess the transposition and implementation of this fundamental disclosure Directive in the Accession countries.

The Directive has:

• not been transposed in Estonia and the Slovak Republic
• partially transposed and implemented in Romania and Slovenia;
• formally transposed in Latvia and Hungary, but not yet fully implemented;
• fully transposed and implemented in Bulgaria, the Czech Republic, Lithuania and Poland.

The second part of the project focused on the analysis of the data disclosed under the Directive, or another local standard.

Our results also shed some light on the development of ownership patterns of companies over time since they where privatised and/or introduced to the local stock exchange. At the beginning stages of transition, ownership structure of firms in different countries depended on the privatisation method applied. For example, the corporate ownership structure in Czechoslovakia (and in the Czech Republic and Slovakia since 1993) was quite dispersed in the early years of 1993-94 as a result of voucher privatisation. Hungary, on the other hand, employed privatisation to strategic (foreign) owners directly. This, in turn resulted in relatively more concentrated ownership already at the beginning of transition. However, as the table on median of the largest voting block bellow shows, an overwhelming trend to higher concentration of ownership is present in almost all the transition countries in accession. With the exception of Slovenia, voting power in all the countries is highly concentrated. For the median listed company in Estonia, Latvia, Lithuania, the Czech Republic, Hungary, Poland, Romania and the Slovak Republic in 1999/2000 the concentration of voting power is comparable to the concentration levels measured in European Union countries at the end of 1996. Slovenia and the United Kingdom display the lowest median blocks (22.3 and 9.9%) in the sample.

At the same time, our ownership data documents a decrease in state involvement across all the countries. The state as an owner of productive assets is replaced by domestic or foreign individuals and firms. Particularly interesting is the fact that domestic entities have not been entirely replaced by foreigners. In all countries, listed companies are often controlled by domestic blockholders.

The trend towards higher concentration of ownership in almost all the transition countries has been given two opposing interpretations: In transition countries blockholders play a necessary monitoring function and in their absence the free-riding problem experience by dispersed shareholders are large. Blockholders are the only practical solution for mitigating conflicts of interests between dispersed shareholders and management. Two, blocks arise because they provide self-dealing opportunities to those in control, a phenomenon that is aided by an underdeveloped legal environment and stock markets. Extensions of this project will help to shed some light to these issues by relating the patters and dynamics of concentration of voting power in companies in the Accession countries to corporate performance and board turnover.

As the transposition and implementation of the Large Holdings Directive progresses further an increasingly accurate picture of corporate control in Accession countries emerges. This will pose interesting further questions for researchers and policy makers, especially in the European Union itself.

Median of Largest Voting Block

Source : Phare ACE Project 97-8042-R, Becht and Mayer (2001)

Note : Voting blocks for all EU countries. For Accession countries voting blocks for the Czech Republic and Poland; direct stakes for the other countries. U.S. issuers listed on the New York Stock Exchange.

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