Building a Castle on Sand: Effects of Mass Privatization on Capital Market Creation in Transition Economies

CERGE-EI Working Paper No. 256

56 Pages Posted: 8 Dec 2005

See all articles by Zuzana Fungáčová

Zuzana Fungáčová

Bank of Finland - Institute for Economies in Transition (BOFIT)

Date Written: April 2005

Abstract

In this paper we study the relationship between mass privatization and capital market development in the transition economies. The link is investigated empirically using a panel of data which includes most of the transition countries. Our results confirm the hypothesis that mass privatization exerted a negative influence on capital market functioning in the short and medium term. Results further indicate that in countries with mass privatization, the capital market was established and perceived only as a byproduct of the privatization process and did not serve as a source of capital for the corporate sector. This non-transparent market of thousands of securities caused negative investor sentiment and thus did not contribute to initiating economic growth.

Keywords: Privatization, mass privatization, emerging capital markets, capital market

JEL Classification: G15, G28, P34

Suggested Citation

Fungacova, Zuzana, Building a Castle on Sand: Effects of Mass Privatization on Capital Market Creation in Transition Economies (April 2005). CERGE-EI Working Paper No. 256, Available at SSRN: https://ssrn.com/abstract=868471 or http://dx.doi.org/10.2139/ssrn.868471

Zuzana Fungacova (Contact Author)

Bank of Finland - Institute for Economies in Transition (BOFIT) ( email )

Snellmaninaukio
PO Box 160
Helsinki 00101
Finland

HOME PAGE: http://www.bof.fi/bofit_en/index.htm

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