Country Analyses, Second Edition
Edited by Christine A. Mallin
Chapter 9: Corporate governance and the structure of ownership of Hungarian corporations
* Álmos Telegdy INTRODUCTION Central and Eastern European countries have experienced vast and rapid changes in virtually all spheres of their society during the last two decades. The economic environment in which firms operated, as well as their internal structure have also changed dramatically. In this chapter we present how the transition process shaped the corporate governance of Hungarian firms, how the stock exchange developed and how firms’ ownership structure transformed from totally state-owned into one which is dominated by private owners with a heavy presence of foreign investors. We first present the legal framework regulating the relations of firms’ managers and their owners, as well as the legal protection of owners of small stocks from expropriation by large blockholders. In harmony with the literature, we place particular emphasis on the governance of listed firms, where small shareholders are more prevalent than in other corporations. Listed firms, however, make up only a tiny fraction of all corporations, and non-listed firms also went through major changes which shaped their ownership structure and the potential corporate governance problems since the country started its transition from a command economy towards a market-oriented economic system. The most important policies shaping the control of enterprises were the privatization of firms inherited from socialism, and attitudes toward foreign direct investment (FDI). We discuss these policies, their likely impact on firm behaviour, and present evidence on their effect on the structure of corporate ownership. In the next section we present the corporate governance regulation of limited liability companies,...
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