INVESTOR BEHAVIOR IN MASS PRIVATIZATION - THE CASE OF THE CZECH VOUCHER SCHEME

In the first round of the Czech privatization scheme, the authorities set a uniform share price for all companies, creating a natural experi ment for testing several hypotheses concerning the determinants of sha re demand. We find a positive relation between first-round share deman d and later stock market prices, supporting use of share demand to mea sure relative share values. We find that share demand is related to pr oxies for agency costs and the expected costs of financial distress. I nterestingly, share demand is directly related to the percentage of sh ares held by insiders, which is relevant for the debate in former Comm unist countries over whether privatization programs should restrict in sider holdings.