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    STUDIA NEGOTIA - Issue no. 2 / 2000  

  Abstract:  The democratic political transition in Romania and Hungary and the privatisation--process which had followed, increased sharply the share of private ownership and created a large number of companies and a lot of small, but dispersed owners. During the communist regimes there was a single, dominant but negligent owner: the state. Ownership and governance wasn''''t separated and there was in fact a single type of governance: the autocratic one. In this new context ownership and governance is necessarily separated, because small shareholders and investors cannot afford the time and means to effectively control the companies they own. This large number of companies and owners makes also difficult for the state to monitor their activity and to provide adequate legal enforcement of the laws and regulations,which show an unprecedented dynamism in evolution. The existing legal loopholes and the lack of effective control by adequate supervisory institutions are often capitalised on by the managers or by the controlling shareholders of the companies, while on the other hand the development of self-sustaining control mechanisms also takes time. Unfortunately this emerging new economic elite shows little consideration for the well being of the society as a whole, therefore the design of adequate laws and the implementation of a quick response judicial system is crucial for securing the proper functioning of the emerging markets and also for the fairness of the new economic system. The paper tracks the evidence of corporate governance mechanisms found in Romania and Hungary in the last years of the nineties, analysing the causes and methods of management discretion,. It starts with sketching the basic agency problem lying behind the facts and ends with examining aspects of the legal protection found in the judicial systems of these two countries, reaching to a set of conclusions. These conclusions show the lack or weakness of adequate corporate governance mechanisms, and given the increased social sensitivity and the egalitarian view of the people of this region, calls for effective minority shareholder and investor protection.  
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