Restructuring in the Czech Republic: Beyond Ownership and Bankruptcy

Restructuring of large industrial holdings in the Czech Republic (S-firms) depends on probes into new markets. The development and financing of probes generates internal holdups and stalemates among the government, banks and S-firms. The government tries to preserve the value of just-privatized S-firms while avoiding subsidies; banks, facing their delinquency, cannot force bankruptcy since keeping them as clients is as important as maintaining capital adequacy. A compromise arises, IMBR (intricate monitoring based restructuring), where the outside parties condition their involvement on a peculiar reorganization of the firm. We provide the empirical and theoretical underpinnings of IMBR, the emergence of which is neither deliberate nor accidental.