Corporate governance in Russia:effects of ownership concentration on corporate governance in the Russian firms

This Master Thesis examines corporate governance in Russia and effects of ownership concentration on dividend policies in the Russian companies. We find that the classical agency approach is not applicable in the case of the Russian firms, but the stakeholder theory should be applied instead. We discuss effects of different stakeholders on the corporate governance. According to the existing evidence insiders (large shareholders, managers and employees) and outsiders (minority shareholders and creditors) can impose constraints on the companies in Russia. Also the State and product markets can affect corporate governance practices in the Russian companies. At the same time the role of boards of directors is very important in countries like Russia, where low legal enforcement and weak investor protection prevail. Boards should mitigate the agency problem in absence of proper investor protection and law enforcement. The previous research suggests that a classical conflict of owners and managers is not the case in the Russian corporations. Instead the conflict of large and small shareholders should be considered. Thus, our research focuses on the analysis of ownership concentration effects on corporate governance. We use dividend payout ratios as a proxy for corporate governance practices in the Russian companies. We find extremely low dividend payouts in the Russian companies. The finding implies that the agency problem does exist in the Russian companies. However, our results suggest that it is not caused by ownership concentration. Instead ownership concentration has a significant positive effect on dividend payouts. Our findings support the prior research suggesting that a large shareholder has enough incentive and power to monitor management. The results are also in line with the substitute dividend model, according to which we can conclude that large shareholders would compensate minority shareholders for weak investor protection and also would try to establish good reputation on the capital markets