Top PDF Law and Finance in Transition Economies

Some scholars have recently argued that the classic corporate governance paradigm with its focus on the control of management by outside investors is too narrow to capture the specific problems of transition economies and other emerging markets (Berglöf and von Thadden 1999). In particular, small investors are unlikely to play an important role in these economies either today, or in the foreseeable future. In transition economies, the role of residual state ownership and the behaviour of blockholders such as the infamous Russian oligarchs suggest broadening the scope of analysis to reflect potential conflicts between a variety of stakeholders. Moreover, the historical experience of continental Europe emphasises the role of banks as providers of outside finance at the expense of broad equity markets at least until recently. For the less risky, capital intensive modernisation investments characteristic of lower levels of economic development, bank finance may be more appropriate – in turn suggesting a priority of creditor rights over shareholder rights in the process of legal reform (Carlin and Mayer 1999). While securities markets were effectively non-existent at the start of transition, a rudimentary banking system was generally in place. In line with this reasoning, the improvement of creditor rights might have priority over changes to the legal protection of minority shareholders.

This workshop is organised as a series by the Outreach Unit for Financial Sector Reform, Directorate for Financial and Enterprise Affairs of the OECD, under the aegis of the Committee on Financial Market and the Centre for Co- operation with Non-Members programs. The objective of the workshop is to provide a forum for relevant policy makers, representatives of the private sectors and other experts to exchange information and experiences in the field of housing finance. The workshop will review the current stage of mortgage markets in transition economies and assess the steps needed to develop their markets. This will be held at the OECD headquarters in Paris (OECD conference hall Room 1) on 14-15 December 2004. The discussions will focus on various issues concerning the development of housing finance markets in transition economies such as;

There are good reasons to argue that the transition economies of Eastern Europe should aim at housing finance systems that deliver specialized services to the sector within fully integra[r]

The obstacles begin with the definition of RE in official statistics: traditionally, hydropower – mostly provided by large plants – has delivered the lion’s share of RE in countries’ energy generation mix, with other types of RE – when included – making up barely a few per cent of overall energy production. Recently, however, some environmentalists and policymakers have contended that large hydropower projects should not be viewed as viable contributions to sustainable energy production, as they often cause serious negative environmental and social externalities (notable examples are the giant Three Gorges Dam on the Yangtze River in China or the Ilisu dam project in Turkey). Moreover, most traditional, large hydro projects in the developing world have been co-financed by multilateral financial institutions and the local governments, with little or no involvement sought of commercial finance (World Bank, 2003). The use of an overall RE measure could therefore introduce a downward bias into the results on the importance of the financial sector for more modern RETs such as wind, geothermal and solar power. A further possible issue concerns the negative impact on agricultural (food) production of

In the process of unifying the international market law through practises which now create great chances of growth and investments, an important role was played by big strong professional organisations and associations which were in the position to influence typing of regulations in a particular field of international business law. With their type and form contracts practically even the tiniest elements were regulated in conformity with the clause for “execution of activities with facility and safety’. Parties which want to bind a contract with members of these organisations do not have any other possibility except to accept entirely or entirely refuse the contract conditions, and exactly from this contracts are designated according to acceptation or adhesion contract. Unified form of contract typing are also general conditions or business conditions which are provided by the above mentioned professional organisations regarding the regulation of contracting relations in a particular scientific field.

The role of the stock market becomes qualitatively different after World War II, when it experienced a great expansion. In the last twenty years of the twentieth century, the stock trading in securities and derivatives begins to play a significant role in international finance. The expansion of the regulated financial markets coincides with the trend of public sale of the stock shares at the end of the 90s. Many stock markets have gone to the cooperative business structure with members of the brokers and banks, as owners, for profit companies with limited liability, including the external owners. For most members of the stock market business goals have changed according to the new form of governance. One of the reasons for the stock market expansion is business dynamics, and other considerations are the operation quality and efficiency of listing and trading.

More generally, economic growth in a modern economy hinges on an efficient financial sector that pools domestic savings and encourages foreign capital to the domestic economy. According to Ewah et al. (2009), the rate of economic growth of any nation is inseparably linked to the sophistication of its financial markets and specifically to capital market efficiency. Filer, Hanousek and Campos (1999) survey 70 countries and report evidence of a positive and significant relationship going from stock market development to economic growth, particularly in emerging economies. Rajan and Zingales (1996) have argued that in economies where inside finance is available, the contribution of financial intermediaries to economic development and growth may be relatively small. However, they further argue that financial sector development may play a particularly beneficial role in the rise of new firms. If these firms are disproportionately the source of new ideas, financial development can enhance innovation and thus enhance economic growth in indirect ways. This condition is likely to apply in transition economies which are the subject of this thesis because of the mass privatisation of industrial organisations and the creation of new commercial organisations as markets emerged and developed.

So far we have assumed that export growth affects all countries in a similar fashion. The specification of the model suggests that an increase in export growth by one percent would have the same effect on growth in all countries. In reality, however, it is possible that export growth is more crucial in natural resource abundant countries than in others. The reason is that these countries are typically dependent on their export revenues to finance investment into new capital goods. As Szirmai (1997) explains, theories of dependent development argue that in countries that are very dependent on primary exports, the internal market is “disrupted” in the sense that there are few linkages between the primary sector and the rest of the economy. There is no continuous production chain from primary goods production to manufacturing. Instead, these countries export primary goods and import capital goods. External shocks, such as a worldwide economic downturn and a fall in demand for this country’s exports, have a much stronger effect on these countries because the lack of export revenue causes a fall in investment. The domestic economy cannot make the capital goods itself. Without export revenues, the country cannot pay for capital imports, and investment falls. Since investment is crucial for future growth, a fall in export revenue can have a lasting effect on these countries’ growth rates.

for the year (figure 11). This suggests that the consequences of recent political and economic uncertainties are believed to remain locally circumscribed, not affecting global flows especially in the medium-term. In fact, for 2016 almost 90 per cent of all IPA respondents, irrespectively of their home country, expressed high expectations about inflows to their country. However, the view from IPAs for inward FDI differed by region, particularly regarding target industries. IPAs in developed economies anticipate good prospects for FDI in machinery, business services such as computer programming and consulting, transport, and communications, especially telecommunications. African IPAs expect further investments in the extractive and utilities industries, while Latin American IPAs emphasize the finance and tourism services. Asian IPAs report positive prospects in construction, agriculture, and machinery. IPAs in transition economies have high expectations for the construction, utilities, and textiles industries.

The profitability variable ( 352) ) has a strong negative effect on debt targets in both countries. The results support the pecking order theory of finance indicating that in general the firms, which are lacking internal funds, would like to close the gap by setting higher targets for debt. The static model indicates that lower profitable firms do reach these lever- age targets and exceed the high profitable companies in their reliance on debt. We com- plemented this result by including the ratio of net current assets as an explanatory variable in the regression 13 . The coefficient is negative and significant indicating that the decrease in the proportion of current assets not funded by the debt (lack of liquidity) positively af- fects the debt targets. We also tried to include the profit margin variables in the model 14 . Again, the coefficient was negative and significant.

Our suspicion is confirmed if we consider the results separately for each panel, shown in columns 2, 3, and 4 in table 5. In all three groups the β coefficient is statistically significant at the 1% level of probability that indicates a significant long-term relationship between savings and investment in these countries. A second feature of the results is that as we move from CEE to SEE and to CIS (high to low level of economic development) the β coefficient decreases. The highest value of 0.86 is measured in the CEE panel, in SEE it is 0.58, and the lowest value of 0.47 is measured in the CIS panel. This is in line with our intuition, established in part 4, that as countries become bigger and richer their need to borrow externally decreases, because they create enough domestic savings to finance their investment. In terms of Feldstein and Horioka’s belief that the β coefficient is an indicator of the capital mobility between countries, we may conclude that capital mobility is potentially the highest in the least developed countries (in our case CIS), whereas as we move towards a panel of developed countries it decreases. In other words, the puzzle is relevant to the examined countries.

The sample covers fourteen countries: six former Soviet republics (Belarus, Georgia, Kyrgystan, Latvia, Russia and Ukraine) and eight Central European countries (Bulgaria, Croatia, Czech Republic, Hungary, Poland, Romania, Slovak Republic and Slovenia). This choice was dictated either by the data availability (Bank’s laws) or institutional settings (Estonia and Lithuania adopted currency boards thus their ability to conduct monetary policy is limited). The main legal characteristics of the Central Banks in these economies, with some additional information on the adherence to the law in practice, are presented in the appendix. The information on political and economic independence, defined as in GMT (1991), are summarised in Tables 1 and 2 and aggregated into two indices respectively 9 . The structure of indices is similar to GMT but there are few important differences. Firstly, I use different criteria for evaluation of the Governor's appointment procedure. The nomination from the President is given two asterisks, from the Parliament one asterisk and from the Government none. It takes into account the characteristic feature of less advanced transition economies, namely the populism and the anti-reformatory stance of some Parliaments. I also assume that the bank is more politically independent if the provisions for dismissal of governing body's member, as stated in the law, are non- political only (like, e.g., loss of ability to perform his duties or sentence for a criminal act). Consequently the new variable is added to the political index. The political pressure on the Bank's management is more likely to be influential if the members of the governing body can be easily removed from their office. In addition, in the political index the parliament or government approval of monetary policy is regarded as a limitation to CBI (instead of the government approval only as in GMT). In the index of economic independence the CBI is higher if the Bank charges market or basic interest rate on its credit to the government (in GMT only the market rate). Although this provision makes the Bank more prone to the Government financial needs, it is surely better than no limitation on the interest rate at all.

Especially in the outlying regions of Russia, where the rule of law was even weaker than in Moscow, crime and corruption bloomed. In many companies, managers put pressure on workers to sell them their shares at ridiculous prices, so that they could themselves gain a majority stake. These manager-owners were then free to do whatever they wanted. Since there was no central authority to register shareholders, companies themselves recorded share transactions and kept these information secret in safes. This provided another opportunity for owner-managers to cheat on owners of minority stakes. As a result, the initial fall in output in Russia was longer and more pronounced than in other transition economies. Corruption and the lack of financial markets, which could have acted as a disciplining mechanism, led to an inefficient allocation of resources. Economic growth stayed negative until 1998, when reforms and a strengthening of the rule of law finally showed some beneficial effects.

There is an increased need to develop internal business capabilities to deal with increasing competition as well as business growth such as specific consulting and business training programmes. Three formal constraints: taxes, policy instability and legal regulations form a barrier for business development throughout the transition stages. Access to finance also continues to be a barrier to businesses throughout the three transition stages but it seems that the types of financing needed is affected by transition stage. In the primary or secondary stages the emphasis lies on the need for micro-credit and short and long term bank loans, the more advanced stages necessitate more sophisticated financing such as venture capital and stock listings (Aidis. 2003). As Pissarides (2004) has indicated, it is important for financing opportunities to adapt to the requirements of SME owners as transition progresses, allowing for more complex forms of financing including venture capitalists in more advanced stages. However, there are different viewpoints as to the sequence of funding and institutional building needed for SME development (Aidis, 2003:16). Insufficient knowledge about Internet applications is an important barrier to the adoption of e-business practices among SMEs For Slovenia, Poland, Romania and Cyprus. Research indicates that many SME managers consider the Internet is useful but mostly for the operations of big companies. As a result, they do not see compelling reasons for e-business adoption in SMEs (Damaskopoulos and Evgeriou, 2003:138). Ukrainian business environment is not favorable for the innovations. High taxes and corruption create non-favorable conditions for innovations in SMEs. Many companies reported taxation and legislation among the main barriers to innovations (Egorov and Voytovich, 2001:1455).

They show that banks in transition economies are But a market-based housing finance system is unlikely reluctant to make mortgage loans because of the risks in to emerge without [r]

number of follow up papers increasing the understanding of duration of trade. Besedeˇs (2008) shows a search cost model fits duration data well in that it can explain the preponderance of short and small valued relationships. Nitsch (2009) examines duration of German import trade and finds similar results. Brenton, Saborowski, and von Uexkull (2009) find evidence of learning-by-doing decreasing the hazard of exporting of developing countries, while Jaud, Kukenova, and Strieborny (2009) find that financial development improves export survival of developing countries by reducing the costs of external finance to firms. In this paper I show that differences in the hazard of exporting across product types in transition economies are not as large as was the case for imports of developed economies of the U.S. and Germany. In addition, there are two important changes taking place. Firstly, the hazard of exporting homogeneous goods become lower than that of differentiated goods by the end of the period analyzed. Secondly, the hazard of new relationships increases over time across the three product types and across all countries.

Direct grants are the most attractive form of subsidy for applicants because there is no requirement for repayment. They are also relatively simple for the funds to administer and involve little financial risk. As shown by the experience of the Polish EcoFund (see “Swapping Debt for the Environment: The Polish EcoFund”, OECD 1998), when used in a very selective and targeted manner, direct grants can also be effective in leveraging other sources of finance (provided they exist). The major drawbacks of direct grants are that of “moral hazard” sometimes associated with “free” money and, at least from a fund’s perspective, that no portion of the resources return to the fund. Soft loans, in addition to promising a financial return to the fund and thus providing it some level of financial self-sufficiency (a key attraction for fund managers), may encourage greater financial discipline on the part of borrowers and reduce moral hazard. However, soft loans do raise certain concerns that should be considered carefully by the funds. These include: the risk of default; the erosion of the real value of repayments by inflation; typically high administrative costs of making and managing loans (usually significantly higher than those associated with grant provision), and; generally lower scope for leveraging other (especially commercial) sources of finance compared with the leveraging potential of grants.

The Phare Programme is currently the main channel for the European Union’s financial and technical cooperation with the countries of central Europe (CECs). Set up in 1989 to support the sweeping reforms behind economic and political transition, Phare had by 1996 been extended to include 13 partner countries from the region. Originally allocated EURO 4.2 billion for the 1990-1999 period, the Phare budget was increased to EURO 6.693 billion for the 1995-1999 period.

Excess demand is positive (and thus private saving negative) throughout the adjustment, as is indicated by the gradual liquidation of the stock Dt.Y 2 In the absence of real shocks to ou[r]

Some of disadvantages that may influence the market success of SMEs are: size, inability to benefit from economies of scale and scope, informational asymmetry and local focus. The solution to these common problems can be supported by combining SMEs strengths through cooperation and networking. Different modalities of inter-enterprise and enterprise/institutions collaboration can be defined as: horizontal networking (among SMEs), vertical networking (among SMEs and larger enterprises) and clustering where larger concentrations of enterprises operating in the same locality and belonging to the same or complementary sectors (UNIDO, 2001). Some evidence of successful inter-enterprise and enterprise/institutions collaboration Many SMEs networking initiatives failed because of the absence of trust among companies and between com- panies and government, leadership and management approaches as well as absence of entrepreneurial skills in managing business networks. Even though local governments or regional agencies have a capacity to mo- bilize actors from the public and private sectors, generic public initiatives are proved not to be enough. The private sector should also be supported in gathering around joint interests and solving their mutual problems, thus improving business and competitiveness. Research, management and policy instruments to support SMEs will need to have some other directions. Can standardization be one of the directions? The main ob- jective of this paper is to present some aspects of need for standardization in SMEs networking initiatives. The solution to actual or potential matching problems (intended and expected to be used repeatedly or continu- ously, during a certain period, by a substantial number of parties for whom they are meant) can be formalized as standard. The standard development process can serve as basis for building connections and trust among cluster members. Even though some researche emphasizes the role of ad hoc de facto standards as well as standardization in the contexts of achievement of the optimum degree of order in SMEs networks, specific ex- perience is evident in all cases, but experience in design of ad hoc de facto standards and standardization management are still missing.