Capital Market Development and Corporate Governance In Poland: The Way Forward

Poland's capital markets remain underdeveloped in comparison to countries of similar per capita income. Large listed companies rely importantly on external sources of finance, mostly from banks and increasingly less from capital markets. International markets provide a source of capital for top Polish blue chip firms, but are largely unavailable to smaller listed and unlisted companies. Evidence indicates that both listed and unlisted companies are finance-constrained, and equity and long-term credit markets continue to fail to provide Polish firms with the resources they need to finance their investment opportunities. While corporate governance practices have improved considerably from where they were ten years ago, the oversight of firms and managers remains limited, with still incomplete legal and regulatory tools to discipline managers and relatively inactive institutional investors. As a consequence, firm performance and firms' valuations in Poland are below those of similar firms in more developed markets. Remaining weaknesses in the corporate governance framework have in some cases allowed controlling owners to misuse funds and treat minority shareholders poorly. This has raised the funding costs of all corporations and led to economic costs as attractive investment opportunities have gone without funding. Corporate governance practices among Polish companies remain substandard from both the minority shareholder protection and firm performance perspective. While the management of some large Polish companies appears to have become more sensitive to the concerns of shareholders and have established investor relations programs, most of these are companies with offshore listings. The efforts of various groups in Poland to develop a code of best practice for publicly-listed companies will continue to keep the shortcomings of current Polish practices on the policy agenda. With more active investors, calls for improvement in real transparency, management accountability, and board oversight in smaller listed companies can be expected to increase and, hopefully, useful and practical standards will emerge with applicability to both listed and unlisted firms.