Ownership Concentration and Foreign Investment in the Czech Republic: Development and Context

The matter of the optimal ownership structure has been the focus of corporate governance researchers for more than 80 years. There is agreement among academicians that these issues are still an important topic, as they may affect the strategy, performance and competitiveness of a business. The unfamiliarity with these issues is more pronounced in the Czech environment, where there is a lack of up-to-date data. Due to the fact that the effect of ownership concentration and structure is strongly affected by the legal system and other country-level specifics, conclusions of studies from other countries are not fully applicable to the Czech economy. This paper first reviews and synthesises the results of previous studies on ownership concentration and structure in the Czech Republic. In addition, it brings new empirical evidence about the development of ownership concentration and structure in the Czech Republic between 2004 and 2012 which is based on data from more than 5,700 companies. Moreover, the development of ownership concentration and structure in the Czech Republic is put into the context of the transition of the Czech economy from a centrally planned economy to a free market economy and further significant events such as the monetary crisis in the late 90s, the accession to the EU or the financial crisis in 2008. To meet the length limit, ownership structure is proxied with a share of foreign capital in this paper. According to the results, ownership concentration is very high in the Czech Republic and has grown since 1993 with a few exceptions only. For a better comparison of the results from the different sources, ownership is expressed in several different ways (T1 to T5, T10) for the period for which the primary data is available. The development of shares of foreign direct investment is also analysed. This paper is primarily a review study, but it also fills in gaps in the evidence of ownership concentration and structure of Czech companies. It is often stated that the "Continental Europe" model tends to exhibit higher levels of concentration and more frequent bank ownership, whereas the "Anglo-American model" is characteristic by dispersed ownership with a strong presence of institutional owners. The Czech corporate governance model was two-tiered until the end of 2013 and the typical ownership concentration was said to be higher than in other countries with a two-tiered model. It is important for researchers to be able to quantify this difference. Since the beginning of 2014, Czech companies have been able to choose between two-tiered and single-tiered models. Therefore, a complete and precise quantification put into broad context is important for practitioners too.