Investor behavior in mass privatization: The case of the Czech voucher scheme

In the first round of the Czech privatization scheme, the authorities set a uniform share price for all companies, creating a natural experiment for testing several hypotheses concerning the determinants of share demand. We find a positive relation between first-round share demand and later stock market prices, supporting use of share demand to measure relative share values. We find that share demand is related to proxies for agency costs and the expected costs of financial distress. Interestingly, share demand is directly related to the percentage of shares held by insiders, which is relevant for the debate in former Communist countries over whether privatization programs should restrict insider holdings.