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In this paper we analyze interrelations between ownership structures, corporate governance and investment in three transition countries: Russia, Ukraine and Kyrgyzstan. In contrast to most empirical papers on corporate governance, we study companies with very little exposure to public financial markets. Our empirical analysis is based on two years of data obtained through large-scale surveys of firms. Ukrainian companies appear to have the best corporate governance practices, while Russian companies – the worst. We find that the relationship between ownership concentration and corporate governance is non-linear. In Russia, the relationship between the share of the largest non-state shareholder and corporate governance is either positive or insignificant when the blockholder’s stake is below a certain threshold; however, a further increase in the blockholder’ share is associated with worsening corporate governance. We find a similar effect in Ukraine, but only for managerial ownership. In both countries, corporate governance improves as the combined share of small shareholders grows. No robust effects of the ownership structure are found for Kyrgyz firms. Further we show that the market for corporate control seems to have little relationship to the firms’ corporate governance practices. We find no link between the quality of corporate governance and either the need for outside finance or actual investments financed with outside funds in either of the three countries.

Corporate Governance, Ownership Structures and Investment in Transition Economies: The Case of Russia, Ukraine and Kyrgyzstan