EXIT AND VOICE AFTER MASS PRIVATIZATION - THE CASE OF RUSSIA

Mass privatization programs attempt to effect a global transformation of the economic and political environment. Since specific designs of s uch programs are shaped by the necessity to generate ex ante political support for a massive ownership transformation, they may result in al locating control rights to agents who have incentives to oppose, rathe r than to effect, reallocation of resources within and across firms. E xemplifying this political exigency of the reform process, the Russian mass privatization program gave to enterprise insiders majority owner ship in as many as 70% of Russian companies. The largest outside owner s to emerge in the overwhelming majority of the companies in the insid er-dominated Russian economy were the 'voucher privatization funds'. I n this paper we attempt to shed some light on the corporate governance role and strategies of this group of outside investors. We focus on t wo particular strategies of funds' activities: shareholder activism (' voice') and trading ('exit'), each of which has different costs and be nefits in postcommunist transition economies than in advanced market s ystems, The econometric analysis is based on data collected in an empi rical survey of 148 voucher investment funds in 28 different regions o f Russia, The funds surveyed held stakes in 4,000 to 5,000 privatized companies, thus offering a genuine 'window' on the world of Russian fi rms and their new institutional shareholders.