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Corporate Form, Institutional Complementarity, and Organizational Behavior: Open versus Closed Joint-Stock Companies in Russia

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Corporate Governance in Emerging Markets

Part of the book series: CSR, Sustainability, Ethics & Governance ((CSEG))

Abstract

The vast majority of Russian corporations are still compelled to become closed joint-stock companies that lack a modern fundraising mechanism in order to attract capital from a wide range of private investors. This is due to factors such as significant insider ownership, a strong orientation among managers toward closed organizations, slumping needs for corporate finance, and underdeveloped local financial institutions. The impact of ownership structure on the choice of corporate form exists, even if we assume that the two elements are determined endogenously. Under these circumstances, however, a significant number of closed companies attempt to develop more open internal organizational structures that are virtually the same as those of open companies. Nonetheless, an institutional coupling of a closed corporate form and an open internal organizational structure is far from effective in resolving the serious in-house problems facing Russian firms, such as the prevention of infighting among executives and shareholders and the implementation of discipline among top management.

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Notes

  1. 1.

    The closed JSCs covered by the joint survey include four workers’ joint-stock companies (people’s enterprises). Because the workers’ JSCs are run under a system that is substantially different from that of standard closed JSCs (Iwasaki 2007a), we have excluded all workers’ JSCs from the observations when they are inappropriate to include in empirical analysis. See Dolgopyatova et al. (2009, Appendix) for more detailed information on the joint survey. Other research outcomes based on the same dataset used in this chapter include: Abe and Iwasaki (2010) and Iwasaki (2008, 2011, 2013a, b).

  2. 2.

    These provisions refer to the Civil Code, Part I, Chap. 4, Articles 96 to 104, and to the Law on JSCs. This section was written taking into account the laws and regulations that were effective in Russia during the period in which the enterprise survey was conducted and which was used as the base material for this empirical study.

  3. 3.

    Refer to Article 1 of the amended Federal Law on Minimum Wages of December 29, 2004.

  4. 4.

    The ownership share of domestic individual shareholders is completely excluded from OWNOUT. This is to eliminate the ownership effects from the management executives’ family members, relatives, or friends as well as those of the employees, all of whom are formally categorized as outside shareholders.

  5. 5.

    Newly established private firms after the collapse of the Soviet Union are treated as the default category in our estimation.

  6. 6.

    The two-stage procedure would be to estimate the reduced forms for ownership variables by probit or ordered probit maximum likelihood and estimate the corporate form choice model by probit after substituting the predicted values for ownership variables.

  7. 7.

    The correlation coefficients for CLOCOM and each of the newly introduced four variables range between −0.032 and 0.019 and are statistically insignificant.

  8. 8.

    This is closely associated with the fact that the sample firms used for the empirical analysis in this section, as well as the overwhelming majority of Russian companies, are unlisted and have stock prices that are not particularly sensitive to management performance, which leads to an extremely low incentive effect of stock ownership by managers.

  9. 9.

    A collective executive board headed by the company president (the general director), which is an internal executive organization voluntarily set up by a company, “takes leadership in daily corporate management except for exclusive competence of the general shareholder meeting and the board of directors” (Article 69(2) of the Law on JSCs). In addition, Article 66(2) of that law prohibits members of a collective executive board from making up more than one quarter of the board of directors. In view of these provisions, it is assumed that the presence of a collective executive board functions to clarify management responsibilities and to enhance the independence of the board of directors from management. For more details on this management body, see Iwasaki (2007a, 2013a).

  10. 10.

    The basic sample for the OLS estimation consists of 417 observations. Sample constraints are the same for the corporate form choice models described in Sect. 3.2.

  11. 11.

    The result of the same test for open companies is: t = −0.752, p = 0.452; Wilcoxon Z = −0.556, p = 0.578.

  12. 12.

    Again, all of the correlation coefficients among the independent variables used in these models were below a threshold of 0.70.

  13. 13.

    We re-estimated all models in Table 9, excluding ownership variables from the independent variables, and confirmed that this treatment did not have any influence on estimates of OPECOM and OPESCO.

  14. 14.

    In almost all of these regression results, the independent variables representing the affiliation with a business group, company size, and financial constraints are estimated with high statistical significance. This also supports hypothesis H3.

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Acknowledgments

This chapter presents research outcome from a Japan-Russia joint research project titled “Corporate Governance and Integration Processes in the Russian Economy” launched by the Institute of Economic Research, Hitotsubashi University, and the Institute for Industrial and Market Studies, National Research University – Higher School of Economics. It is a substantially revised and extended version of Iwasaki (2007b, 2009). This research was financially supported by a grant-in-aid for scientific research from the Ministry of Education and Sciences in Japan (No. 23243032), the Joint Usage and Research Center of the Institute of Economic Research, Hitotsubashi University, and the Japan Securities Scholarship Foundation (JSSF). I also thank Naohito Abe, Sabri Boubaker (book coeditor), Tatiana G. Dolgopyatova, Martin Gilman, Satoshi Mizobata, Duc K. Nguyen (book coeditor), and Andrei Yakovlev for their valuable comments and suggestions, and Dawn Brandon and Jim Treadway for their careful editorial assistance. Needless to say, all remaining errors are mine.

Author information

Authors and Affiliations

  1. Institute of Economic Research, Hitotsubashi University, Tokyo, Japan

    Ichiro Iwasaki

Authors
  1. Ichiro Iwasaki
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Correspondence to Ichiro Iwasaki .

Editor information

Editors and Affiliations

  1. Department of Accounting and Finance, Champagne School of Management (Groupe ESC Troyes en Champagne), Troyes, France

    Sabri Boubaker

  2. IPAG Research Lab, IPAG Business School, Paris, France

    Duc Khuong Nguyen

Appendix

Appendix

Definition, descriptive statistics, and data source of variables used for empirical analysis

Variable name

Definition

Descriptive statistics

Mean

S.D.

Min.

Max.

CLOCOM

Closed JSC dummya

0.33

0.47

0

1

OPECOM

Open JSC dummya

0.67

0.47

0

1

OWNOUT

Outsider ownership shareb, c

1.87

2.14

0

5

OWNSTA

State ownership shareb

0.37

1.02

0

5

OWNFED

Ownership share by federal government agenciesb

0.23

0.82

0

5

OWNREG

Ownership share by regional and local government agenciesb

0.17

0.70

0

5

OWNPRI

Private ownership shareb, c

1.26

1.90

0

5

OWNBAN

Ownership share by commercial banksb

0.11

0.50

0

5

OWNFIN

Ownership share by investment funds and other financial institutionsb

0.16

0.68

0

5

OWNCOR

Ownership share by non-financial corporate shareholdersb

0.88

1.65

0

5

OWNFOR

Ownership share by foreign investorsb

0.22

0.88

0

5

MANSHA

Large managerial shareholder dummya

0.51

0.50

0

1

SECPLA

Securities issuance planning dummya

0.06

0.29

0

2

RELBAN

Relationship-banking dummya

0.82

0.39

0

1

NUMFIN

Number of financial institutions per 1,000 firms in the location

1.19

0.31

0.54

2.18

GROFIR

Business group participation dummya

0.33

0.47

0

1

GROCOR

Core business group member dummya

0.05

0.22

0

1

GROAFF

Business group affiliation dummya

0.28

0.45

0

1

GROSIZ

Natural logarithm of the total number of member firms of a business group

0.68

1.13

0

6.40

PRICOM

Dummy for former state-owned or ex-municipal, now privatized, companiesa

0.69

0.46

0

1

SPIOFF

Dummy for firms separated from state-owned or privatized companiesa

0.10

0.30

0

1

COMSIZ

Natural logarithm of the total number of employees

6.16

0.93

4.66

9.42

CEOSHA

Dummy of shareholding by incumbent CEO (or company president)a

0.63

0.48

0

1

DOMSHA

Dummy of a shareholder or shareholder group dominating corporate managementa

0.87

0.33

0

1

CEOAGE

Age level of incumbent CEO (or company president)d

2.43

0.91

0

5

COMDOM

Intensity of competition with domestic firms in product markete

1.50

0.69

0

2

OPESCO

Indicator of the openness of the internal organizational structuref

−0.09

1.06

−2.91

2.02

INTCON

Internal conflict dummya

0.27

0.44

0

1

CEOTUR

Shareholder-initiated CEO turnover dummya

0.21

0.41

0

1

SALGRO

Changes in gross salesg

1.62

1.27

−2

2

  1. Source: NUMFIN was calculated by the author based on Federal State Statistical Service (2005) and the Central Bank of the Russian Federation (2005). Other variables are based on the results of the joint enterprise survey.
  2. Note: aDichotomous variable, which takes a value of 1 to corresponding firms.
  3. b“Ownership share” means an ownership share rated on the following 6-point scale: 0: 0 %; 1: 10.0 % or less; 2: 10.1–25.0 %; 3: 25.1–50.0 %; 4: 50.1–75.0 %; 5: 75.1–100.0 %.
  4. cExcluding ownership by domestic individual shareholders.
  5. dAge level is rated on the following 6-point scale: 0: 30 years old or younger; 1: 31–40 years old; 2: 41–50 years old; 3: 51–60 years old; 4: 61–70 years old; 5: 71 years old or older.
  6. eThe intensity of competition is rated on the following 3-point scale: 0: no competition; 1: not very competitive; 2: very competitive.
  7. fSample score computed by Hayashi’s quantification method III using 24 qualitative variables (categorical data), which represent the characteristics of a statutory corporate structure. Table 6 reports its results.
  8. gThe changes are rated on the following 5-point scale: −2: decreased by 20 % or more; −1: decreased by less than 20 %; 0: no change; 1: increased by less than 20 %; 2: increased by 20 % or more.

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Iwasaki, I. (2014). Corporate Form, Institutional Complementarity, and Organizational Behavior: Open versus Closed Joint-Stock Companies in Russia. In: Boubaker, S., Nguyen, D. (eds) Corporate Governance in Emerging Markets. CSR, Sustainability, Ethics & Governance. Springer, Berlin, Heidelberg. https://doi.org/10.1007/978-3-642-44955-0_7

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