Case Discussion and Internet Exploration Questions

Closing Case The Search for Capital in the Czech Republic

Website — http://www.henge.com/~vspina/index.shtml

Case Discussion Questions

What are the causes and likely consequences of the capital shortage faced by Czech firms? How does the capital shortage affect the cost of capital in the Czech Republic?
How will selling equity to foreign investors benefit Czech firms and the Czech economy? What would happen to the Czech economy if Czech firms were prohibited from accessing the global capital market? Can you see any drawbacks with the strategy of selling equity to foreign investors?
Why is it easier for Czech firms to execute an IPO in London than in Prague?
If Czech firms continue to raise capital through foreign equity issues, ultimately more than 50 percent of the equity of these firms will be owned by investors based outside the Czech republic. If and when this occurs, will these still be Czech firms?

Internet Exploration Question

This case focuses on the Czech economy since the fall of communism in the late 1980s, and the subsequent ability of Czech firms to raise capital through domestic and foreign equity issues. Following the collapse of communism and the shift toward a more market-oriented system, the Czech Republic initially emerged as one of the more vibrant and market-driven economies in Eastern Europe. By 1998, however, the economic development of the Czech Republic was being held back by a shortage of capital. As a result of a variety of complex macroeconomic and institutional problems, the cost of capital increased for Czech enterprises and entrepreneurs. In addition, it became difficult for Czech businesses to raise capital. Along with the country's economic problems, the Prague stock exchange has a poor reputation in terms of manipulation and fraud. The combination of these factors has caused cash starved businesses in the Czech Republic to "search" for capital as far away as the London stock exchange. The one bright spot is that most analysts agree that the Czech economy has a bright future. How the majority of Czech businesses will find capital in the short term, however, is still an unknown.

This case illustrates the complicated nature of transforming a former planned economy into a free market economy, which is the challenge confronting many countries in Eastern Europe and the Republics of the former Soviet Union. The Czech Republic is being watched closely, however, because it holds more promise for success than other countries. The Prague Tribune Online is a monthly publication that is published in Prague and focuses on business in the Czech Republic. Visit the Prague Tribune's website at {http://www.prague-tribune.cz/}. Locate an article that deals with a topic covered in this case, or another topic that pertains to the Czech economy. Write a short summary of the article. Is the article encouraging or discouraging regarding the current state of the economy in the Czech Republic? Explain your answer.

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