Opal''''s Site Organization and Development of Russian Business_1 docx

I.1 Selected macroeconomic indicators of the Russian 1.1 Chronology of enterprise reforms and related events in 1.2 Privatization of state-owned enterprises and 2.1 Intra-corporate dispu

Organization and Development of Russian Business

This page intentionally left blank

Tatiana Dolgopyatova, Ichiro Iwasaki,

and Andrei A Yakovlev

Selection and Editorial matter © Tatiana Dolgopyatova, Ichiro Iwasaki and Andrei A Yakovlev 2009

Individual chapters © Contributors 2009All rights reserved No reproduction, copy or transmission of this publication may be made without written permission

No portion of this publication may be reproduced, copied or transmitted save with written permission or in accordance with the provisions of the Copyright, Designs and Patents Act 1988, or under the terms of any licence permitting limited copying issued by the Copyright Licensing Agency, Saffron House, 6-10 Kirby Street, London EC1N 8TS

Any person who does any unauthorized act in relation to this publication may be liable to criminal prosecution and civil claims for damages

The authors have asserted their rights to be identified as the authors of this work

in accordance with the Copyright, Designs and Patents Act 1988

First published 2009 byPALGRAVE MACMILLANPalgrave Macmillan in the UK is an imprint of Macmillan Publishers Limited,registered in England, company number 785998, of Houndmills, Basingstoke, Hampshire RG21 6XS

Palgrave Macmillan in the US is a division of St Martin’s Press LLC,

175 Fifth Avenue, New York, NY 10010

Palgrave Macmillan is the global academic imprint of the above companies and has companies and representatives throughout the world

Palgrave® and Macmillan® are registered trademarks in the United States,the United Kingdom, Europe and other countries

ISBN-13: 978–0–230–21728–7 hardbackISBN-10: 0–230–21728–1 hardbackThis book is printed on paper suitable for recycling and made from fully managed and sustained forest sources Logging, pulping and manufacturing processes are expected to conform to the environmental regulations of the country of origin

A catalogue record for this book is available from the British Library

Library of Congress Cataloging-in-Publication Data Organization and development of Russian business : a firm-level analysis / edited by Tatiana Dolgopyatova, Ichiro Iwasaki, and Andrei A Yakovlev

p cm

Includes bibliographical references and index

ISBN 978–0–230–21728–7 (alk paper)

1 Corporate governance – Russia (Federation) I Dolgopyatova, Tatiana, 1951– II Iwasaki, Ichiro III Yakovlev, Andrei A

HD2741.O74 2009338.60947—dc22 2009013790

10 9 8 7 6 5 4 3 2 1

18 17 16 15 14 13 12 11 10 09Printed and bound in Great Britain byCPI Antony Rowe, Chippenham and Eastbourne

Introduction 1

Tatiana G Dolgopyatova, Ichiro Iwasaki, and Andrei A Yakovlev

1 The Emergence of Russian Corporations: From

Tatiana G Dolgopyatova, Ichiro Iwasaki, and Andrei A Yakovlev

Part I Ownership, Internal Control, and

Naohito Abe, and Ichiro Iwasaki

vi Contents

9 Impact of Business Integration on Corporate

11 Business Associations: Incentives and Benefits from

Tatiana G Dolgopyatova, Ichiro Iwasaki, and Andrei A Yakovlev

Appendix: Outline of the Japan–Russia Joint Enterprise Survey 312

Tatiana G Dolgopyatova, and Ichiro Iwasaki

I.1 Selected macroeconomic indicators of the Russian

1.1 Chronology of enterprise reforms and related events in

1.2 Privatization of state-owned enterprises and

2.1 Intra-corporate disputes in 2001–2004 at different levels of

2.2 Average percentage of ordinary shares owned by type of

shareholder at different levels of ownership concentration 45

2.3 Current economic situation of enterprises at different levels of

2.6 Influence of board of directors on corporate decision-making at

different levels of ownership concentration 54

2.7 Structure of board of directors at different levels of capital

3.1 Differences in the legal framework between open and

3.2 Comparative advantages of open and closed companies

over an alternative corporate form of joint-stock company 703.3 Most important reason for being in the current corporate form 713.4 Comparison between open and closed joint-stock companies

regarding the ownership structure, capital demand and supply

constraints, relationship with business groups, past policies on

3.5 Probit regression analysis of the corporate-form choice model 804.1 Descriptive statistics on board size and number of

directors by their attributes of 730 surveyed firms 95

4.2 International comparison of board size and

4.4 Theoretical predictions of the impacts of firm

organization and business activities on board components 107

viii Tables

4.5 Definition, descriptive statistics, and data source of

variables used in the empirical analyses and correlation

4.6 2SLS system estimates of endogenous board formation 1125.1 Studies of managerial turnover in Russian firms 1265.2 Results from vote-counting analysis of the impact of

different types of owners and changes in ownership

5.3 Descriptive statistics of independent variables by

5.4 Logit regression analysis of the impacts of corporate

5.5 Multinomial probit regression analysis of the impacts of

corporate governance and performance on managerial

turnover taking its magnitude into consideration 1385.6 Multinomial probit regression analysis of the impacts of

corporate governance, corporate performance, and

internal conflict on managerial turnover taking its

6.1 Recruiting sources of general directors at independent

6.2 Characteristics of managerial skills and experience by

6.3 Change of general director/board chairman at independent

enterprises and HCGs depending on changes of

6.4 Change of middle-level managers in JSCs in which the general

director was changed by the status of the current director 1576.5 Logistic regression analysis of the propensity of

7.1 Ownership and management configuration at affiliated

7.2 Characteristics of intra-corporate control 1787.3 Turnover of CEOs, boards of directors, and

7.4 Comparison of JSCs with separation or combination of

7.5 Logistic regressions for shareholder choice of separated

7.6 Logistic regressions for shareholder choice of separated

ownership and management and corporate integration 1898.1 Enterprises coordinating strategic decisions with

Tables ix

8.2 Ownership and management in JSCs depending on

8.3 Boards of directors in subsidiaries of BGs in regulated and

9.3 Total factor productivity in subsidiaries of BGs compared with

independent enterprises (Cobb–Douglas production

10.4 Definitions, descriptive statistics, and sources of

10.5 Results of regression analysis on enterprises with no

10.6 Certain characteristics of enterprises depending on main

10.7 Results of regression analysis on enterprises with

11.1 Characteristics of companies: Members and

11.2 Indicators of financial standing of joint-stock companies and

11.3 Types of support rendered to authorities and aid

through various channels depending on membership in

11.4 Benefits for members of associations from

the establishment of steady contacts with authorities 26611.5 Logistic regression analysis of the determinants of

11.6 Logistic regression analysis of probability to obtain

financial and organizational support from the state authorities 27411.7 Utility of business associations and their contribution to

the establishment of standards and rules of conduct of

business, evaluated by respondents in 2002 and 2005 276

11.8 Evaluation of contribution of NGBOs to the solution of

important problems of the business community by

12.1 Construction of the CG_IDX 290 12.2 Distribution of firms depending on the value of the CG_IDX 290

x Tables

12.3 State-controlled companies and firms with a minority stake

12.5 Distribution of firms depending on the value of

12.6 Correlation matrix of the variables used in

12.7 Definitions and descriptive statistics of control variables 29412.8 Ordinary probit regression analysis of the effect of

state ownership on the quality of corporate governance 29712.9 Ordinary probit regression analysis of the effect of political

connections on the quality of corporate governance 300 A.1 Composition of respondents by their position in a company 314 A.2 Geographical composition of the surveyed firms:

A.3 Sectoral composition of industrial firms surveyed:

A.4 Composition of the surveyed firms by

A.5 Breakdown of the surveyed firms by location,

sector and industry, form of incorporation, and

total number of employees 318

2.4 Classification of surveyed companies by participation of

4.1 Board size of 730 joint-stock companies 98 4.2 Proportion of outsider directors for 730 joint-stock companies 100 5.1 Changes in CEO turnover frequency, 1993–2003 124

5.2 Changes in average ownership share by insiders, outside

shareholders, and the state in industrial firms, 1994–2002 125

6.1 Change of managers in the departments following a new

general director appointment by shareholders’ decision 157

7.1 Links between ownership and management in integrated and

9.1 Gains from joining business groups (BGs) according to

directors of enterprises by time of merger 217

9.2 Restructuring activity in subsidiaries of BG vis-à-vis

9.3 Financial performance of different types of enterprises 22310.1 Trend of major asset and liability items of Russian enterprises 238

10.4 Maturity structure (the longest) of borrowings made

10.5 External funds raised in 2004 and banks that offered the most 24611.1 Membership in associations by type of settlement 26811.2 Strategies of membership in associations 272 A.1 Composition of the surveyed firms by sector and industry 315

This volume presents one of the results from the Japan–Russia joint research project entitled “Corporate Governance and Integration Processes in the Russian Economy” conducted by staff members of the Institute of Economic Research of Hitotsubashi University, the Institute for Industrial and Market Studies of Higher School of Economics, and Teikyo University These insti-tutions provided considerable support with the organization of the study meetings and conference presentations within the framework of the project

As reported in the chapters, the authors received financial support from eral research funds and state institutions, including those from the Inamori Foundation, the Japan Securities Scholarship Foundation, the Ministry of Education and Science of Japan, the Moscow Science Public Foundation sponsored by the USAID, the Program for Fundamental Studies of Higher School of Economics supported by the Ministry of Economic Development and Trade of the Russian Federation, and the Zengin Foundation for Studies

sev-on Ecsev-onomics and Finance We also acknowledge the spsev-onsorship from the Foundation of the Japan Legislation Society and the Russian Research Center of the Institute of Economic Research at Hitotsubashi University to carry out editorial work and English proofreading of the whole book

The editors thank all the contributors to this volume for their serious efforts and insights The editors are also grateful to Yuka Miura and Asahi Nishihara for their administration of the project and to Akira Ishida, Elena Leont’eva, and Jim Treadway for their assistance with the preparation of the manuscripts The authors appreciate their colleagues and the participants of the aforesaid study meetings and conferences for their valuable comments and suggestions on their research works published in this volume

Last but not least, all the authors would like to extend their thanks to Taiba Batool, Alec Dubber, and Gemma Papageorgiou of the editorial staff of Palgrave Macmillan, as well as Vidhya Jayaprakash and the team at Newgen Imaging Systems for their kind cooperation

Naohito Abe is Associate Professor at the Institute of Economic Research at

Hitotsubashi University, Tokyo

Svetlana B Avdasheva is Professor of the Faculty of Economics and

Deputy Director of the Institute for Industrial and Market Studies at State University – Higher School of Economics, Moscow

Tatiana G Dolgopyatova is Chief Researcher at the Institute for Industrial

and Market Studies and Professor of the Faculty of Economics at State University – Higher School of Economics, Moscow

Victoria V Golikova is Senior Research Fellow at the Institute for Industrial

and Market Studies at State University – Higher School of Economics, Moscow

Ichiro Iwasaki is Professor at the Institute of Economic Research at

Hitotsubashi University, Tokyo

Fumikazu Sugiura is Assistant Professor of the Faculty of Economics at

Teikyo University, Tokyo

Andrei A Yakovlev is Director of the Institute for Industrial and Market

Studies and Vice-Rector at State University – Higher School of Economics, Moscow

CIS Commonwealth of Independent States

EACES European Association for Comparative Economic Studies

EBRD European Bank for Reconstruction and Development

FCSM Federal Commission for Securities Market of Russia

FDI foreign direct investment

FFMS Federal Financial Markets Service of Russia

FGUP corporatization of federal state enterprises

FIG financial-industrial group

FSU former Soviet Union

GAAP Generally Accepted Accounting Principles

GDP gross domestic product

HCG holding company group

IAS International Accounting Standards

IBRD International Bank for Reconstruction and Development

IER Institute of Economic Research, Hitotsubashi University

IIA independence from irrelevant alternatives

IMF International Monetary Fund

IPO initial public offering

JACES Japanese Association for Comparative Economic Studies

JSC joint-stock company

LSE London Stock Exchange

M&A mergers and acquisitions

MBA master of business administration

MIC military-industrial complex

MNL multinomial logit estimator

MNP multinomial probit estimator

NASDAQ National Association of Securities Dealers Automated

QuotationsNCCG National Council on Corporate Governance

NYSE New York Stock Exchange

OECD Organization for Economic Cooperation and Development

Abbreviations xv

OKONKH Russian All-Union Classifier of the National Economy

BranchesOLS ordinary least squares

R&D research and development

REB Russian Economic Barometer

ROA return on assets

ROSSTAT Federal State Statistical Service of Russia

RSFSR Russian Soviet Federative Socialist Republic

RTS Russian Trading System Stock Exchange

S&P Standard & Poor’s

SBERBANK Savings Bank of Russia

SOE state-owned enterprise

SME small and medium-sized enterprise

SU-HSE State University-Higher School of Economics

TACIS Technical Aid to the Commonwealth of Independent States

ProgramTFP total factor productivity

TTPP Think Tanks Partnership Program

UES Unified Energy System of Russia

USAID United States Agency for International Development

USSR Union of Soviet Socialist Republics

VTB Bank for Foreign Trade of Russia

This page intentionally left blank

Tatiana G Dolgopyatova, Ichiro Iwasaki, and Andrei A Yakovlev

This book was published 17 years after the collapse of the Soviet Union in December, 1991 The transitional path to a market-oriented economy in the Russian Federation, where socialism had been developing for decades, clearly shows that the overall restructuring of a planned economy is a time- and resource-consuming social process Due to such difficulties, there is a broad consensus among scholars that systemic transformation in Russia should continue into the future to achieve a well-functioning market economy

Nevertheless, government and citizen reform clearly extricated the try from a dire predicament Russia is currently in its eleventh year of eco-nomic recovery from a severe financial crisis in 1998 Table I.1 shows that the gross domestic product (GDP) has averaged 7% annual growth from

coun-1999 through 2007 The other macroeconomic indicators also suggest great improvements in the Russian economy Most economists agree that this remarkable rise in macroeconomic performance occurred as a result of the rapid expansion of Russia’s export markets against the historical setting of increasing energy prices (i.e., oil and natural gas) in the world markets

It is noteworthy, however, that the long-lasting economic developments

in Russia also depend on the extensive improvement of its corporate sector

as a result of 17 years of structural reforms Progress is undeniable ing ownership reform and the management restructuring in Russian enter-prises in the post-privatization period Furthermore, Russian investors and business people are now very actively launching their own companies on the international stock markets The expansion of Russian businesses in the world economy and the considerable growth of foreign direct investment (FDI) into the Russian real sector have also taken place In fact, Figure I.1 indicates significant growth of FDI inflow into Russia in 2006 and 2007

regard-in both gross and net terms Despite a political backlash to market alization observed in recent years, these facts strongly attest to the inten-sive integration of Russia into the global markets and the openness of the Russian domestic markets for multinational enterprises and other foreign investors.1