Ultimate ownership and corporate performance in Russia

This study investigates the distribution of ultimate control and ownership rights and their impact on corporate performance in a post-privatization economy with an institutionally weak market and extremely high private benefits of control. Russia provides a unique setting to examine ultimate ownership patterns and the effectiveness of the corporate control model based on state and private participation in the mixed-owned companies. The country’s ownership structure is the evolving product of a multi-stage privatization that was followed by a series of severe battles for corporate control. It is characterized by extremely low transparency of owners’ identities, complex control chains, and varying levels of state participation in privatized companies through direct and indirect stakes owned by federal and regional level authorities. The dissertation consists of the three closely related essays. The first essay is a survey of current theoretical knowledge and empirical evidence on the determinants of cross-country differences in ultimate ownership characteristics. I also examine the limited empirical evidence on ownership and control patterns in Russian corporate sector paying special attention to the country-specific institutional and regulatory environment. The second essay is the first empirical attempt to examine ultimate control and ownership structures in Russia. The study suggests several adjustments to the traditional methodology used to identify ultimate owners which would allow an assessment of ownership structures of extremely low transparency. My results reveal highly concentrated ownership, substantial holdings by non-transparent individuals who mask their identity under nominees and foreign offshore companies, and extensive indirect state participation in privatized companies through pyramids and “golden shares”. In the third essay, I examine the performance implications of different types of state participation in Russian public companies. State control is modeled as a multi-dimensional variable. The empirical results suggest that performance gains occur when both state and private investors have substantial control rights in a company. This private/state investor coexistence works toward improving monitoring: the state restricts private investors from exercising excessive private benefits of control, while private investors inhibit the state from exercising excessive political and social benefits of control. The effect is robust to alternative model specifications and performance measures.