Journal Article

The Vouchers Privatization Process as a Price Discovery Mechanism

Elli Kraizberg

in Review of Finance

Volume 3, issue 2, pages 175-203
Published in print August 1999 | ISSN: 1572-3097
Published online August 1999 | e-ISSN: 1573-692X | DOI:
The Vouchers Privatization Process as a Price Discovery Mechanism

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The privatization process through which governments transfer their holdings vary from one country to another. The coupon (or voucher) privatization process, which has been frequently utilized in Eastern Europe, is generally characterized by a transfer of government holdings to the public for less than their full economic value. The vouchers process in the Czech Republic, specifically, is a case in which the transfer was practically free and in which foreign participation was banned. As such, and in the absence of an actual flow of funds, the process constituted an interesting large-scale experiment of a price discovery mechanism whose empirical conclusions are inconclusive. On the one hand, the variance of the expected outcomes declines during this process, but on the other hand, the participants could obtain superior outcomes using public information, while some, who had access to private information, may performed even better. Thus, wondering whether the process in the Czech Republic served as an efficient price discovery mechanism, additional potential distortions should be investigated: (i) the specific rules of the process through which the public exchanged bidding points for shares, or (ii) the role that funds' managers played, in lieu of the potential conflict between their objective functions and those of the shareholders of these funds, and (iii) lack of uniformity in information reporting standards.

Generally, a failure to discover prices may lead to inefficiency in capital markets, because of the potential distortion of relative prices. If, in fact, the process in the Czech Republic, during the ‘second wave’, in which most of the shares of over 800 companies were transferred to the private sector, did not serve as an immediate price discovery mechanism, the ‘damage’, if any, was probably not significant, since it was not associated with a massive reallocation of funds, and the market could eventually correct itself once real funds started to pour in, in reaction to post-process relative prices.

Journal Article.  0 words. 

Subjects: Financial Law ; Financial Institutions and Services ; Financial Markets

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