Table 3.4 Comparison between open and closed joint-stock companies regarding the ownership structure, capital demand and sup- ply constraints, relationship with business groups, past policies on company start-ups, and company size Variables a Open JSCs Closed JSCs b N Mean/ proportion Median N Mean/ proportion c Median d Outsider ownership share (OWNOUT) 448 2.21 2.00 223 1.18 *** 0.00 ### State ownership share (OWNSTA) 473 0.66 0.00 236 0.12 *** 0.00 ### Federal government agencies (OWNFED) 480 0.49 0.00 238 0.09 *** 0.00 ### Regional and local government agencies (OWNREG) 478 0.23 0.00 237 0.05 *** 0.00 ### Private ownership share (OWNPRI) 449 1.72 0.00 223 1.06 *** 0.00 ### Commercial banks (OWNBAN) 470 0.19 0.00 231 0.07 ** 0.00 ### Investment funds and other financial institutions (OWNFIN) 465 0.31 0.00 233 0.09 *** 0.00 ### Non-financial corporations (OWNCOR) 463 1.06 0.00 237 0.69 *** 0.00 ### Foreign investors (OWNFOR) 469 0.37 0.00 234 0.31 0.00 ## Proportion of firms with a large managerial shareholder (shareholder group) (MANSHA) 527 0.43 0.00 255 0.58 ††† 1.00 ### Proportion of firms planning to issue securities in the near future (SECPLA) 449 0.12 0.00 256 0.08 0.00 Proportion of firms with a long-term credit relationship with a certain commercial bank (RELBAN) 529 0.85 1.00 256 0.76 ††† 1.00 ### Proportion of member companies of a business group (GROFIR) 553 0.41 0.00 269 0.36 0.00 Proportion of core corporations of a business group (GROCOR) 553 0.05 0.00 269 0.06 0.00 Proportion of affiliated companies of a business group (GROAFF) 553 0.35 0.00 269 0.31 0.00 Continued 9780230_217287_05_cha03. dd 77 5/14/2009 3:44:52 PM Table 3.4 Continued Variables a Open JSCs Closed JSCs b N Mean/ proportion Median N Mean/ proportion c Median d Total number of member companies of a business group that a company belongs to (GROSIZ) 536 7.67 0.00 261 9.98 0.00 Proportion of former state-owned or ex-municipal privatized firms (PRICOM) 553 0.78 1.00 269 0.51 ††† 1.00 ### Proportion of firms that separated from a state or privatized company (SPIOFF) 553 0.09 0.00 269 0.11 0.00 Average number of employees (COMSIZ) 553 2414.77 600.00 269 794.19 *** 300.00 ### Notes: a “Ownership share” means an ownership share rated on the following 6-point scale: 0: 0%; 1: 10.0% or less; 2: 10.1 to 25.0%; 3: 25.1 to 50.0%; 4: 50.1 to 75.0%; 5: 75.1 to 100.0%. OWNOUT and OWNPRI exclude ownership by domestic individual shareholders. MANSHA, SECPLA, RELBAN, GROFIR, GROCOR, GROAFF, PRICOM and SPIOFF are dichotomous variables, which take a value of 1 to corresponding firms. b Workers’ joint-stock companies (people’s enterprises) are excluded from observations. c *** : The difference of the means in comparison with open JSCs is significant at the 1% level according to the t-test (the Welch test was performed instead of the t-test when the null-hypothesis that the two samples have the same population variance was rejected by F-test for homoscedasticity), ** : at the 5% level; ††† : The difference of the proportions in comparison with open JSCs is significant at the 1% level according to the ␹ 2 test. ### : The difference in comparison with open JSCs is significant at the 1% level according to the Wilcoxon rank-sum test, ## : at the 5% level Source: The joint enterprise survey. 9780230_217287_05_cha03. dd 78 5/14/2009 3:44:52 PM Legal Form of Incorporation 79 Furthermore, the differences between open and closed JSCs regarding the proportion of companies having a long-term credit relationship with a spe- cific commercial bank, the proportion of privatized firms, and the average number of employees are also statistically significant and consistent with our theoretical hypotheses. The remaining variables need to be reexamined using a regression analysis technique, since their statistical significance was not detected by simply comparing the descriptive statistics. Multivariate regression analysis The basic sample for our estimation consists of 557 observations, excluding all stock companies that have already issued securities in the past (Sample type I). In order to validate the robustness of the estimation results, a sup- plementary estimation is performed using the following three cases: Sample type II, which is made up of the firms included in Sample type I exclud- ing all communications firms; Sample type III, which excludes firms whose number of employees exceeds the mean of the number of employees of the closed JSCs plus/minus 1 standard deviation from the basic sample set; and Sample type IV, which consists of firms with a stable ownership structure that did not experience changes in major shareholders from 2001 to 2004. An estimation using the former two cases focuses on the estimation bias arising from the characteristics of newly emerged telecommunication busi- nesses and those of mega corporations. On the other hand, the estimation using Sample type IV deals with the possible endogeneity relating to cor- porate forms and ownership structures. As an alternative way to deal with the endogeneity of two elements, we also conducted a two-stage probit esti- mation 16 by introducing the following four variables to be utilized as addi- tional instruments together with all exogenous variables in the right-hand side on the first stage of regression: a dummy variable of shareholding by an incumbent CEO (or president) (CEOSHA); a dummy variable that is assigned a value of 1 if there is a shareholder or a shareholder group that substantially controls corporate management (DOMSHA); the age level of the CEO or com- pany president (CEOAGE); and a three-point-scale assessment of the inten- sity of competition with domestic firms in a product market (COMDOM). 17 The White’s estimator of heteroskedasticity-consistent standard errors is used for various statistical tests. The following is the basic equation of our regression, and the marks in parentheses stand for the expected signs: Pr[CLOCOM = 1] = F(constant, OUTOWN(-), MANSHA(?), SECPLA(-), RELBAN(-), NUMFIN(-), GROFIR(-), GROSIZ(+), PRICOM(-), SPIOFF(-), COMSIZ(-), industry dummies) Table 3.5 shows the estimation results. 18 The coefficients of the independent variables represent their marginal effects. 9780230_217287_05_cha03. dd 79 5/14/2009 3:44:52 PM Table 3.5 Probit regression analysis of the corporate-form choice model Dependent variable CLOCOM Sample constraints a Type I Type I Type I Type I Type II Type III Type IV Type I Model [1] [2] [3] [4] [5] [6] [7] [8] OWNOUT Ϫ0.055 *** Ϫ0.056 *** Ϫ0.058 *** Ϫ0.058 *** Ϫ0.050 *** Ϫ0.169 ** (0.01) (0.01) (0.01) (0.01) (0.01) (0.07) OWNSTA Ϫ0.120 *** (0.03) OWNFED Ϫ0.106 *** (0.03) OWNREG Ϫ0.143 *** (0.04) OWNPRI Ϫ0.041 *** (0.01) OWNBAN Ϫ0.023 (0.05) OWNFIN Ϫ0.071 (0.04) OWNCOR Ϫ0.057 *** (0.01) OWNFOR 0.019 (0.03) MANSHA 0.100 ** 0.093 ** 0.099 ** 0.102 ** 0.104 ** 0.105 ** 0.110 ** 0.210 * (0.05) (0.05) (0.05) (0.05) (0.04) (0.05) (0.05) (0.11) SECPLA Ϫ0.131 * Ϫ0.124 * Ϫ0.129 * Ϫ0.133 ** Ϫ0.113 Ϫ0.116 Ϫ0.175 * Ϫ0.124 ** (0.07) (0.07) (0.07) (0.07) (0.08) (0.08) (0.10) (0.06) 9780230_217287_05_cha03. dd 80 5/14/2009 3:44:53 PM RELBAN Ϫ0.148 Ϫ0.153 ** Ϫ0.146 ** Ϫ0.149 ** Ϫ0.138 ** Ϫ0.158 ** Ϫ0.134 * Ϫ0.143 ** (0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.07) (0.07) NUMFIN Ϫ0.188 ** Ϫ0.191 *** Ϫ0.194 *** Ϫ0.192 *** Ϫ0.164 ** Ϫ0.185 *** Ϫ0.142 Ϫ0.146 ** (0.06) (0.07) (0.07) (0.06) (0.07) (0.07) (0.08) (0.07) GROFIR Ϫ0.217 ** Ϫ0.216 ** Ϫ0.209 ** Ϫ0.179 * Ϫ0.253 *** Ϫ0.169 Ϫ0.225 ** (0.10) (0.09) (0.09) (0.10) (0.09) (0.14) (0.09) GROCOR Ϫ0.232 *** (0.08) GROAFF Ϫ0.196 ** (0.10) GROSIZ 0.098 ** 0.088 * 0.085 * 0.094 ** 0.084 * 0.115 ** 0.067 0.122 ** (0.05) (0.05) (0.04) (0.05) (0.05) (0.05) (0.07) (0.05) PRICOM Ϫ0.390 *** Ϫ0.383 *** Ϫ0.403 *** Ϫ0.394 *** Ϫ0.376 *** Ϫ0.388 *** Ϫ0.423 *** Ϫ0.392 *** (0.06) (0.06) (0.06) (0.06) (0.06) (0.06) (0.07) (0.06) SPIOFF Ϫ0.173 *** Ϫ0.162 ** Ϫ0.166 *** Ϫ0.178 *** Ϫ0.160 *** Ϫ0.168 ** Ϫ0.200 *** Ϫ0.180 *** (0.06) (0.06) (0.06) (0.06) (0.06) (0.07) (0.07) (0.06) COMSIZ Ϫ0.062 ** Ϫ0.058 ** Ϫ0.060 ** Ϫ0.064 ** Ϫ0.049 * Ϫ0.070 ** Ϫ0.068 ** Ϫ0.037 (0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03) (0.03) Industry dummies Yes Yes Yes Yes Yes Yes Yes Yes N 557 555 555 557 525 534 389 527 Pseudo R 2 0.19 0.20 0.21 0.19 0.16 0.19 0.17 0.17 Log likelihood Ϫ295.70 Ϫ290.69 Ϫ286.06 Ϫ295.44 Ϫ283.83 Ϫ284.18 Ϫ211.91 Ϫ282.43 Notes: a Type I: basic sample (available observations without firms that already issued securities in the past); Type II: excluding communications firms from the basic sample; Type III: excluding those with the total number of employees exceeding the mean of number of employees of closed JSCs (794.19 person) plus/minus 1 standard deviation (3,149.14) from the basic sample; Type IV: excluding those that experienced a change in the major shareholders from 2001 to 2004 from the basic sample. *** : significant at the 1% level, ** : at the 5% level, * : at the 10% level. Source: Author’s estimation. The number of financial institutions per 1,000 firms in the location (NUMFIN) was calculated by the author based on Rosstat (2005) and CBR (2005). Other variables are based on the results of the joint enterprise survey. 9780230_217287_05_cha03. dd 81 5/14/2009 3:44:53 PM 82 Organization and Development of Russian Business Except for the variables representing ownership by financial institutions including commercial banks and foreign ownership, all of the explanatory variables for Models 1 through 4 estimated using the basic sample have the predicted signs with high statistical significance. 19 The presence of non- managerial shareholders diminishes the probability that an investment- target firm will become a closed JSC. Another interesting aspect is that the marginal effect of state involvement is much stronger than the influence of private owners. The impact of capital demand and the development of local financial institutions also reduce the probability of the choice of closed JSCs. Companies linked with a business group through ownership tend to choose to become open JSCs. However, the larger a business group becomes, the higher the number of closed companies that are included among its member firms. Privatized firms are more likely to be open companies, as are JSCs spun off from state-owned or municipal enterprises or from other privatized companies. In addition, as the size of a company grows, the likeli- hood of the company operating as a closed JSC significantly decreases. On the other hand, the result that a large management shareholder dummy (MANSHA) is significant and positive illustrates a special character- istic of the Russian economy. This implies that Russian managers place far more importance on maintaining effective control of their company than on obtaining capital gains by having stock in their companies. Furthermore, it suggests that they have a strong desire to prevent outside intervention by their company management and discipline by shareholders, even at the cost of a somewhat reduced value and lowered transferability of their own shares. 20 In other words, as suggested by agency theorists who elucidate the behavioral pattern of company executives in the developed countries, the inclination toward managerial entrenchment is also significant among Russian managers. Furthermore, this result clearly demonstrates that the most attractive reason for Russian managers to operate their firms as closed JSCs is the variety of fringe benefits they obtain by doing so. Even at the time of the joint survey, which was 14 years after the systemic transformation to a market economy, it was highly likely that many corporate executives still held such perceptions, given the underdeveloped capital and managerial markets in the Russian economy. It is logical that the SECPLA for Models 5 and 6 is slightly less significant than that for the other models since the sample set does not include any communications companies, 21 which represent the emerging industry in Russia, or the largest corporations, which have substantial financial needs and are highly motivated to raise equity capital. It is not surprising that the GROFIR and GROSIZ for Model 7 are insignificant, considering that an impressive 46.4% of the surveyed firms (110 of 237) that experienced a sub- stantial change in their ownership structure from 2001 to 2004 were almost group firms. What is more important from the viewpoint of the statisti- cal robustness of the estimation results is that the explanatory power and 9780230_217287_05_cha03. dd 82 5/14/2009 3:44:53 PM Legal Form of Incorporation 83 significance of the ownership variables in Model 7 are almost at the same level as those of the estimates for Model 1. 22 In addition, the result of a two- stage probit estimation of Model 8 also strongly suggests that there is an empirical relation between the corporate form and the ownership structure even if we assume that both of them are determined endogenously. Concluding remarks In Russia, an overwhelming number of JSCs choose to become closed com- panies despite the fact that this corporate form strays far from the primary nature of stock companies, that is, an economic mechanism intended to raise capital from a wide range of private investors and increase share- holder wealth as effectively as possible. This trend is equally obvious for medium-sized and large enterprises in the manufacturing and communi- cations sectors. In this chapter, we attempted to conduct theoretical and empirical examinations on this quite interesting economic phenomenon using the results of the Japan–Russia large-scale joint enterprise survey. We illustrated the mechanism behind the organizational choice between two alternative corporate forms and identified the following four fac- tors that encourage many Russian firms to be closed: (a) a widespread insider-dominating corporate ownership structure emerging as a result of the mass-privatization policy; (b) a strong orientation among managers toward closed corporate organization due to the underdeveloped capital and managerial markets; (c) slumping needs for corporate finance; and (d) insuf- ficient financial support from local financial institutions. The empirical relation between ownership structure and corporate form does exist even if the endogeneity of the two elements is assumed. The fact that the above four factors still have a significant impact on the behavioral patterns of Russian corporations even after well over a decade since the collapse of the Soviet Union is a reminder of the difficult and time- consuming transition process from a centrally planned to a market-based economic system. We also found that, in addition to the four determinates outlined above, the historical path-dependency of the enterprise privatiza- tion in the early 1990s and the intense formation of business groups, both of which represent peculiarities of the transforming Russian economy, have a significant impact on the choice of corporate form by Russian firms. Acknowledgments The research was financially supported by the Japan Securities Scholarship Foundation (JSSF), the Foundation of Japan Legislation Society, and grants-in-aid for scientific research from the Ministry of Education and Science of Japan (Nos. 16530149 and 17203019) in FY2004–8. I also thank Naohito Abe, Tatiana G. Dolgopyatova, Martin Gilman, Satoshi Mizobata, 9780230_217287_05_cha03. dd 83 5/14/2009 3:44:53 PM 84 Organization and Development of Russian Business Andrei A. Yakovlev for their valuable comments and suggestions. Needless to say, all remaining errors are mine. Notes 1. Including companies of mixed ownership. 2. According to unpublished official statistics. 3. For more details, see the studies on comparative law by Kraakman et al. (2004) and McCahery et al. (2004). Concerning closed corporations in the US, Allen & Kraakman (2003), Pinto & Branson (2004), and Mitchell & Mitchell (2006) pro- vide detailed descriptions and useful case studies. 4. For instance, an overwhelming majority of US closed corporations are family- owned firms that represent 95% of all American businesses and are responsible for about 50% of US employment (Bauman et al. 2007: 339). 5. These provisions refer to the Civil Code, Part I, chapter 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 enter- prise survey was conducted and which was used as the base material for this empirical study. 6. Article 7 of the Regulations for Joint-Stock Companies approved by the Resolution of the RSFSR Cabinet of Ministers No. 601 of December 25, 1990, which was later replaced by the current Law on JSCs, provided that the share- holders of a closed JSC were prohibited from transferring their shares without the approval of the majority of all the shareholders of that closed JSC. The share transfer restriction provided in the Law on JSCs now in effect is less severe than that in the Regulations for Joint-Stock Companies that was in force until the end of 1995. 7. Refer to Article 1 of the amended Federal Law on Minimum Wages of December 29, 2004. 8. Refer to the Presidential Decree on Measures to Protect the Rights of Shareholders and to Ensure the Interests of the State as an Owner and Shareholder of August 18, 1996. This decree lost its effect in February 2005 with the amendment of the Bankruptcy Law. 9. After the Russian government adopted International Accounting Standards (IAS) in 1997, the nation’s accounting system saw some improvements every year in compliance with the Generally Accepted Accounting Principles (GAAP) for industrialized countries. However, there are still some problems in terms of the accuracy and transparency of disclosed company information because of the failure to enforce the IAS at all enterprises as well as because of the insufficient number of auditing firms and accountants (Saito 2003; Iwasaki 2007a). 10. In the US, a company with an “S corporation” status granted by the Internal Revenue Service (IRS) may file a composite tax return of corporate income and loss together with stakeholder’s personal income in order to prevent double taxa- tion of corporate profits for general corporations and personal income tax for dividends. 11. Refer to Article 3 of Part I of the Tax Code. Although it is not reported in Article 3, it is widely recognized that the principle of equal taxation is construed to be applicable to both open and closed JSCs (Abrosimov et al. 2005: 10). In fact, in Russia, joint-stock companies are treated in the same way as limited and other types of companies in terms of taxation. 9780230_217287_05_cha03. dd 84 5/14/2009 3:44:53 PM Legal Form of Incorporation 85 12. In fact, experts at the Levada Center Social Research Institution who assisted with the enterprise survey, drawing upon their experience with panel surveys conducted before and after 2005, confirmed that only about 600 to 700 of 1,000 firms could claim that their company profile was nearly unchanged for a period of 3 years after being surveyed. The remaining 300 to 400 firms were excluded from the panel surveys because they had already closed, changed their business, or made significant organizational changes. 13. See Johnson (1997), Perotti & Gelfer (2001), Hoffman (2002), Klepach & Yakovlev (2004), and Guriev & Rachinsky (2005) for details on the financial-industrial groups and oligarchs in Russia. 14. In other words, domestic individual shareholders, including employee share- holders, are treated as a reference category. The experience of our joint research team and that of other researchers indicates that many Russian top managers do not have sufficient data on company ownership by employees, ownership by other managers, or ownership by the relatives, families, or acquaintances of employees, all of whom are categorized as outside individual shareholders. Therefore, their answers to our questions about their insider ownership may con- tain substantive measurement errors. In addition, the reason that we used a large management shareholder dummy variable that represents the position of man- agers as corporate owners is that it is quite difficult to ask managers to submit accurate data on their own shareholding rate; making such a request of managers is very likely to result in their refusal to participate in the survey. 15. Hence, newly established private firms after the collapse of the Soviet Union are treated as the reference in our estimation. 16. 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. For more details regarding the two-stage estimation meth- ods, see Maddala (1983), Newey (1987), and Rivers & Vuong (1988). 17. The correlation coefficients for CLOCOM and each of the newly introduced 4 variables range between Ϫ0.032 and 0.019 and are statistically insignificant. 18. The correlation coefficients for the independent variables used in each model are well below a threshold of 0.70 for possible multicollinearity in all combinations (Lind et al. 2004). 19. The non-significance of ownership by financial institutions and foreign own- ership is consistent with the statements pointed out by many researchers per- taining to the passive attitude of commercial banks and investment funds as institutional investors, the weak presence of foreign shareholders, and the wide- spread share purchases by managers and their affiliates through offshore compa- nies (Iwasaki 2007b). 20. This is closely associated with the fact that the sample firms used for the empiri- cal analysis in this section as well as the overwhelming majority of Russian com- panies 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. 21. In fact, the Russian communication sector, which has been developing in recent years at a breathtaking speed, driven by cellular phone and Internet service busi- nesses, saw an average annual real growth rate of 22.4% between 2001 and 2004. This growth is much higher than the 4.2% for the eight manufacturing sectors covered by our enterprise survey and is the reason that the telecommunication sector is regarded as the new economy in Russia. 9780230_217287_05_cha03. dd 85 5/14/2009 3:44:53 PM 86 Organization and Development of Russian Business 22. On the other hand, all models were re-estimated by logit, and the results were found to be almost the same as those indicated in Table 3.5. Bibliography Abrosimov, A. et al. (2005) Kommentarii k Nalogovomy Kodeksy Rossiiskoi Federatsii (Moscow: Eksmo). Alchian, A. A. & Demsetz, H. (1972) Production, information costs, and economic organization, American Economic Review, 62: 777–795. Allen, W. T. & Kraakman, R. 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European Bank for Reconstruction and Development (EBRD) (2005) Transition Report 2005: Business in Transition (London, EBRD). Fama, E. F. & Jensen, M. C. (1983a) Separation and ownership and control, Journal of Law and Economics, 26: 301–326. Fama, E. F. & Jensen, M. C. (1983b) Agency problems and residual claims, Journal of Law and Economics, 26: 327–349. Federal State Statistical Service (Rosstat) (2004) Struktura i Osnovhye Pokazateli Deyatel’nosti Predpriyatii (Bes Subientov Malogo Predprinimatelistva) za 2003 God po Dannym Strukturnogo Obsledovaniya (Moscow: Rosstat). Federal State Statistical Service (Rosstat) (2005) Rossiiskii Statisticheskii Ezhegodnik 2004 (Moscow: Rosstat). Federal State Statistical Service (Rosstat) (2007) Rossiiskii Statisticheskii Ezhegodnik 2006 (Moscow: Rosstat). 9780230_217287_05_cha03. dd 86 5/14/2009 3:44:54 PM [...]... firms22 New Zealand listed firms23 98 Organization and Development of Russian Business Figure 4.1 demonstrates that the board sizes of Russian enterprises are influenced by the abovementioned legal restrictions as to the minimum required number of board members according to the number of shareholders In fact, of the 730 joint-stock companies, as many as 520 firms, or 71.2%, have a total of 5, 7, or 9... study of the above specific features in the Russian economy in terms of their effects on board structure will contribute valuable findings and theoretical viewpoints to the study of transition economies as well as to the field of financial and organizational economics To investigate three objectives stated above, we conduct an empirical analysis of the determinants of (a) board size, (b) proportion of. .. results of the Japan–Russia large-scale enterprise survey conducted in 2005 The survey results include information on the size of the boards, basic attributes of board directors, and methods used for the appointment of board chairmen, 9780230_217287_06_cha04 dd 91 5/14/2009 3:46:31 PM 92 Organization and Development of Russian Business which made it possible to carry out a detailed investigation of 741... the board of directors setting forth detailed rules on board structure as well as the appointment of board members (chapter 3, section 2) The CG Code, 9780230_217287_06_cha04 dd 93 5/14/2009 3:46:32 PM 94 Organization and Development of Russian Business however, contains very few numerical targets of board composition; one of those mandates that joint-stock companies include in their articles of incorporation... importance for understanding the organizational behavior of business firms in a transition period and is the second objective of this chapter These two objectives raise the question of which dimension of a firm’s organization and which business activities are essential for the empirical analysis of Russian corporations To address this issue, the potential determinants of board structure are classified... addition, as suggested by Hermalin and Weisbach (1988), a corporate board is 89 9780230_217287_06_cha04 dd 89 5/14/2009 3:46:31 PM 90 Organization and Development of Russian Business a competitive training site for CEO candidates Accordingly, a corporate board is not necessarily comprised of persons whose roles are limited to managerial supervision Moreover, as Bathala and Rao (1995) argue, outsider directors... Newey, W K (1987) Efficient estimation of limited dependent variable models with endogenous explanatory variables, Journal of Econometrics, 36: 231–250 9780230_217287_05_cha03 dd 87 5/14/2009 3:44:54 PM 88 Organization and Development of Russian Business Perotti, E C & Gelfer, S (2001) Red barons or robber barons? Governance and investment in Russian industrial and financial groups, European Economic...Legal Form of Incorporation 87 Furubotn, E G & Richter, R (2005) Institutions and Economic Theory: The Contribution of the New Institutional Economics (second edition) (Ann Arbor: University of Michigan Press) Gordon, R H & Mackie-Mason, J K (1994) Tax distortion to the choice of organizational form, Journal of Public Economics, 55: 279–306 Guriev, S & Rachinsky, A (2005) The role of oligarchs in Russian. .. which reflect the bargaining power of managers and that of interested parties who are in conflict with the managers, and other governance variables for the examination of the second objective of this research In this chapter, the impacts of the three variable groups are empirically compared within the structure of corporate boards As a third objective, we propose and empirically validate several theoretical... management Meanwhile, the role of a board of directors cannot be limited to the monitoring of management even in a broad sense that would include CEO appointment and turnover, the assessment of financial performance, and the determination of managerial remuneration A board of directors is hierarchically superior to management In fact, it provides strategic management expertise, advice, and recommendations regarding . Yes Yes Yes Yes Yes Yes Yes Yes N 55 7 55 5 55 5 55 7 52 5 53 4 389 52 7 Pseudo R 2 0.19 0.20 0.21 0.19 0.16 0.19 0.17 0.17 Log likelihood Ϫ2 95. 70 Ϫ290.69 Ϫ286.06 Ϫ2 95. 44 Ϫ283.83 Ϫ284.18 Ϫ211.91 Ϫ282.43 Notes: a . (GROFIR) 55 3 0.41 0.00 269 0.36 0.00 Proportion of core corporations of a business group (GROCOR) 55 3 0. 05 0.00 269 0.06 0.00 Proportion of affiliated companies of a business group (GROAFF) 55 3. (20 05) and CBR (20 05) . Other variables are based on the results of the joint enterprise survey. 9780230_217287_ 05_ cha03. dd 81 5/ 14/2009 3:44 :53 PM 82 Organization and Development of Russian Business Except