Enterprise Restructuring in Transition Economies: The Need for Venture Capital Financing

It is over five years since the countries of Central and Eastern Europe (CEE) initiated a rapid programme of economic reforms. Although substantial progress has been achieved within this short period, especially with regard to price and monetary reforms, trade liberalisation and privatisation of large state‐owned enterprises, the majority of these countries have yet to develop a properly functioning financial market to accommodate the financing needs of the growing population of privatised firms. While considerable progress has been made in reforming and modernising the banking and financial sectors, the undercapitalisation of banks and the limited capacity of financial institutions to fill the capital gap (Dockery, 1995) have tended to cause slowness in restructuring the enterprises and general economic progress. The continuing demands for investment capital by the newly privatised firms (and those in the process) require active support of financial institutions to provide the much needed capital in the emerging market economy.