Ownership and the temptation to loot: Evidence from privatized firms in the Czech Republic

Using a new dataset on firms privatized in the Czech Republic from 1993 to 1996, we show that, even after controlling for size and structure, voucher-privatized joint stock companies perform worse than firms with concentrated shareholdings that had to be purchased for cash, i.e., limited liability companies and foreign joint stock companies. We argue that static asset stripping, or tunneling in Czech parlance, was combined with dynamic looting of the Akerlof and Romer (1993) type because these same joint stock companies had privileged access to soft credit from state controlled banks. Although we do not have direct evidence of looting, we show that liabilities increased at a much faster rate in joint stock companies than in limited liability companies. (C) 2002 Elsevier Science (USA).