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. Last Updated: 07/27/2016

New Study: Investors Respected

The managements of some major Russian companies respect shareholder rights out of self-interest, even where it is hard to enforce legally guaranteed rights, according to a recently published study.

The study, by Dirk Willer of the London School of Economics' Centre for Economic Performance, is based on a survey of 140 major companies and contradicts the widely-held view that Russian companies generally ignore the interests of shareholders.

It thus backs the experience of funds such as Pictet et Cie's First Russian Frontiers Trust, which says it has encountered few difficulties despite adverse publicity about the problems of transferring and registering shares, voting or receiving dividends.

"Even if there are no state-enforced shareholder rights, managers can find it optimal to choose to honor shareholder rights in order to be able to obtain funding for new projects by issuing new equity," the study said.

The study, completed in November last year before a rally in Russian share prices in the New Year, says one reason for the relatively low valuation of Russian equity is the risk of violation of shareholder rights. In some well-publicized early cases, management refused to register share purchases. Insufficient provision of financial information made it hard for shareholders to monitor management.

"However, among the largest Russian stock-companies there is a small group of firms that has started to honor shareholder rights," it said.

As far as control rights are concerned, communications and power utility companies are more likely to be shareholder-friendly, probably because of their investment needs, it said. "It shows that in the short run market forces can act to some degree as a substitute for a well-developed legal system that would protect shareholder rights," it said.

The study also finds evidence that the state as a shareholder puts pressure on management to honor shareholder rights, as it wants to raise as much as possible when ultimately selling off its stake.