Economics of Corporate Form: Why Do Russian Firms Prefer to Be Closed Companies?

In Russia, an overwhelming number of joint-stock companies (JSCs) choose to become closed companies despite the fact that this corporate form strays far from the primary nature of stock companies. Using the results of a Japan-Russia joint enterprise survey conducted in 2005, we examine a variety of factors as to why Russian stock companies select to become closed companies. Our empirical results suggest the following four factors encouraging many of Russian firms to be closed JSCs: (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) insufficient financial support from local financial institutions. The empirical relationship between corporate form and ownership structure exists, even if we assume the endogeneity of the two elements.