Ownership structure and investment finance in transition economies
A survey of evidence from large firms in Hungary and Poland¹

Abstract

Using survey data on 157 large private Hungarian and Polish companies this paper investigates links between ownership structures and CEOs' expectations with regard to sources of finance for investment. The Bayesian estimation is used to deal with the small sample restrictions, while classical methods provide robustness checks. We found a hump-shaped relationship between ownership concentration and expectations of relying on public equity. The latter is most likely for firms where the largest investor owns between 25 percent and 49 percent of shares, just below the legal control threshold. More profitable firms rely on retained earnings for their investment finance, consistent with the 'pecking order' theory of financing. Finally, firms for which the largest shareholder is a domestic institutional investor are more likely to borrow from domestic banks. JEL classifications: G32, P31, P34, F23, L33.Keywords: Corporate governance, investment, enterprises, concentrated ownership, transition .1 This research was financed by the European Commission (Phare ACE Programme P98-1048-R) and the MC Grabowski Fund. We are indebted to Piotr Kozarzewski, Peter Vince, Kate Bishop and Beata Manthey for research co-operation; to Gulnur Muradoglu, Stuart Archbold, Tim Cross and to participants of seminars at University of Prague, University College London, Kopint-Datorg Institute, University of Oxford, Cass Business School and Brunel University, and last but not least to the anonymous referees and the editors for comments. 434Filatotchev, Isachenkova and Mickiewicz

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