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Russian Mass Privatization: Analysis of Financial Structure and Initial Cash Endowments

Richard Puntillo (Associate Professor of Finance, McLaren School of Business, University of San Francisco)
Marina Schneiderman (MBA, McLaren School of Business, University of San Francisco)
Matthew Keehn (MBA Candidate, McLaren School of Business, University of San Francisco)

Managerial Finance

ISSN: 0307-4358

Article publication date: 1 October 1996

90

Abstract

This paper analyzes the cash flow and corporate finance structure of large‐size Russian enterprises required by law to privatize. The legal framework and governmental regulatory structure of Russia's mass privatization program are presented, and particular emphasis is placed on tracing the flow of cash (versus Russian privatization vouchers) between enterprises, investors and the government. Most Russian firms raise no cash during the initial privatization process and, accordingly, have substantial difficulties in obtaining funds to continue operations and to finance their growth and expansion. The authors believe that undue emphasis on the use of privatization vouchers has placed many newly privatized firms in conditions of extreme financial distress. Examples of the initial financial structure of three Western corporate finance transactions — spin‐offs, leveraged buy‐outs (LBOs) and Chapter 11 reorganizations — are compared to the initial endowment of liquid resources in Russian firms undergoing privatization.

Citation

Puntillo, R., Schneiderman, M. and Keehn, M. (1996), "Russian Mass Privatization: Analysis of Financial Structure and Initial Cash Endowments", Managerial Finance, Vol. 22 No. 10, pp. 40-54. https://doi.org/10.1108/eb018585

Publisher

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MCB UP Ltd

Copyright © 1996, MCB UP Limited

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