The governance cycle – here defined as the changes in the identity of the dominant owner and ownership concentration - is marked by the key phases of firm life-cycle, including start-up, growth, an eventual restructuring or exit stage. Privatized firms in transition countries, however, experience somehow specific cycles, which reflect the characteristics of the economic and institutional environment in transition: i) the type of privatization that initially often introduced a high proportion of employee ownership (like in Russia and Slovenia); ii) strong pressures for restructuring and ownership changes; iii) limited possibility for external finance due to the embryonic development of the financial system. The hypotheses on the development of the governance cycles in transition are tested upon a sample of Russian enterprise data for 1995-2003 and Slovenian data covering 1998-2003. In spite of the differences in institutional development concerning privatization and development of corporate governance institutions, we find that governance cycles are broadly similar in the two countries. Employee ownership is rapidly fading in both countries. While change to manager and non-financial domestic outsider ownership is typical for Russia, this is not the case in Slovenia. Instead, change to financial outsiders in the form of Privatization Investment Funds is more frequent. Foreign ownership, which is especially rare in Russia, is quite stable. The ownership diversification to employees and diversified external owners during privatization did not fit well to the low development of institutions. As expected, we observe a subsequent concentration of ownership on managers, external domestic and foreign owners in both countries
Corporate governance cycles during transition: A comparison of Russia and Slovenia