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The paper argues that transparency of large corporate farms operating in transition economies is the factor that affects their competitive position as it helps to preserve access to international equity markets and to reduce uncertainty that arises from imperfect local input markets. We demonstrate that the corporate transparency of large farms is an issue of both public interest and private investor interest and decompose the construct of transparency respectively. Because firms tend to exhibit heterogeneous transparency strategies when facing common sets of pressures, we draw upon four case studies of different Ukrainian agroholdings using the suggested decomposition of the transparency construct. We find that large farms may benefit substantially in the long run if they establish effective corporate governance mechanisms and provide more evidence that they contribute positively to corporate social responsibility and rural development.
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© 2017 Gagalyuk
257
International Food and Agribusiness Management Review
Volume 20 Issue 2, 2017; DOI: 10.22434/IFAMR2016.0055
Received: 26 February 2016 / Accepted: 17 November 2016
OPEN ACCESS
Strategic role of corporate transparency: the case of Ukrainian agroholdings
Special issue: Agroholdings and mega-farms in a global context
REVIEW ARTICLE
Taras Gagalyuk
Senior Researcher, Department of Structural Development of Farms and Rural
Areas, Leibniz Institute of Agricultural Development in Transition Economies
(IAMO), Theodor-Lieser-Str. 2, 06120 Halle (Saale), Germany
Abstract
The paper argues that transparency of large corporate farms operating in transition economies is the factor that
affects their competitive position as it helps to preserve access to international equity markets and to reduce
uncertainty that arises from imperfect local input markets. We demonstrate that the corporate transparency
of large farms is an issue of both public interest and private investor interest and decompose the construct of
transparency respectively. Because firms tend to exhibit heterogeneous transparency strategies when facing
common sets of pressures, we draw upon four case studies of different Ukrainian agroholdings using the
suggested decomposition of the transparency construct. We find that large farms may benefit substantially
in the long run if they establish effective corporate governance mechanisms and provide more evidence that
they contribute positively to corporate social responsibility and rural development.
Keywords: corporate transparency, agroholdings, ownership structure, corporate governance, corporate
social responsibility
JEL code: Q14, Q15, O16, O43, G24, G34
Corresponding author: gagalyuk@iamo.de
http://www.wageningenacademic.com/doi/pdf/10.22434/IFAMR2016.0055 - Tuesday, April 11, 2017 8:47:37 AM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:192.124.243.110
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1. Introduction
The emergence and persistence of large farming companies in the agricultural sector of transition countries
and emerging market economies is increasingly recognized (Deininger and Byerlee, 2012; Wandel, 2011).
Apart from imperfect competition and market failure that follow the transformation process (Koester, 2005),
political support is a considerable factor that facilitates the development of this type of companies (Wegren,
2005) which is often referred to as agroholdings (Balmann et al., 2013; Hockmann et al., 2009; Kataria et
al., 2013).
Particularly, in countries such as Kazakhstan, Russia and Ukraine, the emergence of capitalism was
characterized by unequal access to the privatization process and rapid development of large controlling
shareholders in firms (Dallago and Rosefielde, 2016; Sutela, 2012). At the same time, transition to the market
economy required the adoption of large numbers of laws and regulations over a short period of time (Berglöf
and Pajuste, 2005). Given limited backing from the post-communist political process, the narrow base of the
shareholder constituency of emerging enterprises became entwined with policymakers, causing concerns
about the extent of implementation and sustained enforcement of key provisions (Visser et al., 2012). In this
context, political protection by the rulers, tax reductions or waivers, subsidies and better access to financial
services were and are among the major incentives of large-scale agricultural production (Matyukha et al.,
2015). This entwinement of business and policy created a non-transparent economic environment with a
high level of social unacceptance and mistrust of a free market economy (Epshtein et al., 2013; Oleinik,
2005). Land grabbing, tax evasion, rural unemployment and outmigration are not nearly enough to show
the entire spectrum of problems agroholdings are publicly criticized for (Borras Jr. et al., 2011; Deininger
and Byerlee, 2012; Iwański, 2015; Visser and Spoor, 2011).
Another factor that facilitates agroholdings’ growth is their ability to minimize costs of hired labor monitoring
and maintain increasing returns to scale by means of modern technologies (Valentinov, 2007). However,
growth based on technological progress requires access to capital whereas capital markets are often imperfect
in transition and emerging market economies. The adoption of international reporting and accounting standards
is substantially postponed (Kuzina, 2014; Zeghal and Mhedhbi, 2006) while insufficient disclosure of even
mandatory information on companies makes it impossible for investors and commercial banks to make proper
investment decisions (Il’chenko-Syuyva and Radzimovska, 2008). To this end, the existing empirical studies
demonstrate that the large farm investment behavior is strongly affected by credit constraints (Swinnen and
Gow, 1999; Zinych and Odening, 2009). Therefore, a number of agroholdings express a high demand for
private and public equity in financing growth (Petrick et al., 2013) and increasingly attract outside capital
through listing on international stock markets (Chaddad, 2014).
If a company that emerged and operates under such conditions intends to be listed on international financial
markets, it may face some particular challenges. An international listing requires transparency as an effective
mechanism to mitigate specific consequences of discretionary policies and managerial opportunism. The
main concern is that such companies may not be sufficiently disciplined and regulated for developed capital
markets outside the home jurisdiction (Barth et al., 2008; Sun and Tobin, 2005). Therefore, they may benefit
from improvements in corporate transparency through greater liquidity, lower investor uncertainty and
transaction costs (Lang et al., 2012).
However, the magnitude of the benefits that accrue from higher corporate transparency depends on the
companies’ ability to appropriately address the institutional framework in a given economy. In this context,
not only adherence to legal requirements and practice of information disclosure (Berglöf and Pajuste,
2005) but also response to ideological, mythological and moral societal discourses (Balmann et al., 2016;
Hermans et al., 2009) may strengthen access to capital. Public concerns on the issues like land grabbing,
tax evasion, layoffs, industrial farming practices, etc. that are publicly discussed in relation to agroholdings
may cause social unacceptance of agriculture as well as biased public perceptions and policies. This is even
http://www.wageningenacademic.com/doi/pdf/10.22434/IFAMR2016.0055 - Tuesday, April 11, 2017 8:47:37 AM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:192.124.243.110
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more important given the initially focal role of agriculture in the society and its eventual ‘alienation’ from
the society driven by agricultural technological progress1 (Thompson, 2010).
We therefore argue that corporate transparency of agroholdings is in the focus of both the private investor and
general public interest while survival and growth of agroholdings hinge on their ability to address transparently
the problems of both the investors and general public. Corporate governance, independent audits, financial
disclosure regimes, securities laws and regulators are among the most discussed institutions that promote
corporate transparency (Bushman and Smith, 2003; Bushman et al., 2004). However, such institutions do not
entirely address the issue of corporate transparency as they often overlook public interests, especially against
the backdrop of weak institutional environments and imperfect factor markets. This incomplete perspective
prevails also in the corporate transparency literature that captures specific aspects of transparency rather
than holistic views on the construct.
The general aim of this paper is thus to demonstrate how agroholdings manage their corporate transparency
in order not only to secure access to capital markets through financial information disclosure but also to
address the challenges of the institutional environment by means of transparent corporate social responsibility
(CSR) activities and best communication practices. Because firms generally tend to exhibit heterogeneous
strategies when facing common sets of pressures (Lewis et al., 2014), we draw upon case studies of four
different Ukrainian agroholdings characterized by distinct founder ownership, financial results and extent
of corporate transparency.
The paper is structured as follows. First, we elaborate on the theoretical background of the transparency
construct in management and economic research. Second, we introduce the context of agroholdings in
transition and emerging market economies followed by the results of the case studies. Finally, we develop
managerial implications and conclusions.
2. The concept of corporate transparency
The view that transparency deserves more attention in firm management is widely shared (Deimel et al.,
2008; Fritz and Fischer, 2007; Hanf and Hanf, 2007). In this paper, we focus on the concept of corporate
transparency and use the following research-oriented definition of it: ‘Transparency is the availability of
firm specific information to those outside publicly traded firms’ (cf. Bushman et al., 2004: 207).
Corporate transparency has long been under scrutiny of the financial disclosure literature that followed the
shareholder perspective on firm performance (Friedman, 1970). In this vein, finance and accounting scholars
recognize higher firm transparency with respect to financial statements and the firm’s economic results as
one of the important drivers of shareholder value (Bushman et al., 2004). Apart from timely delivery and
comprehensiveness of financial reports, the financial disclosure research also focuses on complex systems
of supporting institutions that promote the governance of publicly traded companies. Particular attention is
paid to corporate governance structures as they serve to: (1) ensure that minority shareholders receive reliable
information about the value of firms and that a company’s managers and large shareholders do not cheat them
out of the value of their investments; and (2) motivate managers to maximize firm value instead of pursuing
personal objectives. Institutions promoting the governance of firms include reputational intermediaries such
as diverse boards, investment banks and audit firms, securities laws and regulators, and disclosure regimes
that produce credible firm-specific information about publicly traded firms (cf. Bushman and Smith, 2003).
The information that is used for the assessments of the transparency-enabling environment includes annual
reports, articles of association, memorandums of association, annual general meeting minutes, analyst reports,
1
There is an ongoing discussion among agricultural economists representing two different streams of thought on the societal role of agriculture, i.e.
the agrarian vision and the agro-industrial vision of agriculture. Whereas the agro-industrial vision emphasizes the economic benefits of agriculture
for the society (e.g. Boehlje, 1999), the agrarian vision underscores the exceptional moral role of agriculture calling for more agro-political privileges
(Thompson, 2010).
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and other publicly available sources (Cheung et al., 2010). Accounting standards, auditor choice, earnings
management and analysts following are named among the factors that influence corporate transparency (Lang
and Maffett, 2011). Furthermore, there is evidence that more firm shares being publicly traded motivate firms
to be more transparent, i.e. the firm’s ownership structure is another factor that affects corporate transparency
(Chau and Gray, 2002; Patel et al., 2002). The financial disclosure literature also postulates that corporate
transparency is positively related to a firm’s reputation that motivates firms to disclose information more
intensively (Roberts and Dowling, 2002). However, this single effect on accounting performance might
not reflect many of the benefits of good reputations, which usually materialize in the long run and involve
various value drivers.
In this context, the shift from the shareholder focus to the stakeholder perspective in business and management
research (e.g. Frooman, 1999) offers a new terrain for interpretations of the corporate transparency concept.
As a result, corporate transparency is not viewed solely from the agency cost perspective but also as a source
of competitive advantage (Ioannou and Serafeim, 2015). Recent evaluations demonstrate that the perceptions
of the general public also have important implications for future shareholder value (Raithel and Schwaiger,
2015; Rindova et al., 2010). The general public’s perceptions of the firm gain in importance as the demand for
the firm’s ability to address the interests of many stakeholder groups with regard to environmental protection,
social security, product and service quality poses new requirements toward corporate communications.
Importantly, the ability to fulfil these requirements may turn on a number of important drivers of shareholder
value such as improved access to bank loans, sales growth and higher operating margins and thereby sustain
the firm’s competitive advantage (Raithel and Schwaiger, 2015). Furthermore, along with the studies that
argue that higher transparency leads to higher performance (Stiglbauer, 2010), there exists a body of literature
that assumes reverse causality and emphasizes that companies which have already solved their agency
conflicts and perform better may also be more transparent (Eng and Mak, 2003; Li and Qi, 2008). Moreover,
institutional settings that are often unable to preclude the incurring social costs of corporatization may be a
driver of a more ethical behavior of firms (Balmann et al., 2016).
The firm’s CSR activities play an important role in this respect. Ioannou and Serafeim (2015) demonstrate
that the investments analysts’ assessments of the listed companies improve with the firms’ involvement in
CSR. Particularly with regard to the analysts’ forecasts, the expected improvements can be achieved only
if internal and external CSR activities are addressed (Hawn and Ioannou, 2015). Apart from disclosure on
employee security issues, organizational and technological innovations, firms have to demonstrate their
awareness of environmental pressure (Hellberg-Bahr and Spiller, 2012; Hoogiemstra, 2000) and be active in
improvement of social and physical infrastructure, implementation of diversity, community and environment
protection projects. Accordingly, a number of public and private initiatives on CSR disclosure have been
recently developed. The most known of them include the United Nations Global Compact index, the Global
Reporting Initiative (Gamerschlag et al., 2011), Kinder Lyndenberg Domini social ratings data (Bear et al.,
2010) and others.
Importantly, the ability of firms to comprehensively inform about their social, environmental and economic
activities increases with the development of modern communication technologies. These technologies enable
firms to bring together all communications that involve a firm as a corporate entity and, thus, the corporate
communication’s raison d’être becomes to organize a firm’s communication activities as a coherent totality
(cf. Christensen, 2002). In order to address all potential stakeholders, compliance with best communication
practices and the ability to use effectively the communication tools is relevant (e.g. Van den Bosch et al.,
2005). The information that is used for the assessments of best communication practices includes company
website, readability and downloadability of documents, conference calls, etc. (Cheung et al., 2010; Investor
Relations Agency, 2014).
The above presented overview of the literature on corporate transparency as well as some earlier, more
extensive reviews on this issue (e.g. Beyer et al., 2010; Gray et al., 1995; Healy and Palepu, 2001) inductively
deliver a set of criteria that enable comprehensive empirical inquiry into the concept of corporate transparency.
http://www.wageningenacademic.com/doi/pdf/10.22434/IFAMR2016.0055 - Tuesday, April 11, 2017 8:47:37 AM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:192.124.243.110
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These criteria principally compose the following transparency constructs: (1) Information about the firm’s
corporate governance structure; (2) information about owners, shareholders, shares and financial results; (3)
information about the firm’s CSR activities; and (4) compliance with best communication practices (Table 1).
To the best of the authors’ knowledge, the concept of corporate transparency has not yet been analyzed in its
entirety as proposed by this holistic view, particularly from the perspective of corporate enterprises engaged
in primary agricultural production in transition and emerging market economies. We therefore introduce the
context of Ukrainian agroholdings in the subsequent section and then scrutinize the role of transparency in
the agroholdings through the lens of the proposed transparency constructs.
Table 1. Investor and general public orientated criteria for corporate transparency inquiry.
Transparency construct Transparency criteria
(disclosure/availability of information on:)
Corporate governance information
(Bushman et al., 2004; Bushman and Smith, 2003)
• Independent directors
• Board of directors
• Corporate governance rules
• Statute/articles of association
Ownership, share and financial information
(Chau and Gray, 2002; Cheung et al., 2010; Lang and
Maffett, 2011; Patel et al., 2002)
• Corporate report
• Press release on company events
• Presentations for investors
• Shareholder meetings
• Prospectus
• Shareholder structure
• Share price
• Offering structure
• Independent auditor
• Analyst coverage
• Personal contact of investment relations officer
Corporate social responsibility (CSR) information
(Bear et al., 2010; Gamerschlag, 2011; Ioannou and
Serafeim, 2015)
• CSR reports
• CSR events calendar
• Commitment to CSR areas:
community development
diversity and equal opportunities
employee relations
product quality
environment protection
human rights
Best communication practices
(Cheung et al., 2010; Christensen, 2002; Investor
Relations Agency, 2014)
• Possibility of conference calls
• Multiple languages
• Feedback form
• General contacts
• Website search
• Site map
• Usability (‘three clicks to the goal’)
• Regular update
• Document readability
• Document downloadability
http://www.wageningenacademic.com/doi/pdf/10.22434/IFAMR2016.0055 - Tuesday, April 11, 2017 8:47:37 AM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:192.124.243.110
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3. The context: large corporate farms in Ukraine
Our focus on Ukraine is determined not only by the fact that its agricultural sector is increasingly dominated
by operations of large-scale farms but also by the evidence that this transition country accommodates a number
of institutional bottlenecks, driving non-transparent business practices. Entwinement of businessmen and
policymakers, biased public policies, mistrust of a free market economy, insufficient social security systems
and imperfect markets affect the country’s economy today (e.g. Sutela, 2012).
Furthermore, Ukrainian agriculture is subject to a broader controversy that originates from the so-called
alienation of agriculture from the society since agriculture is becoming globally less capable of dealing with
the new societal pressures such as animal welfare and environment protection (Thompson, 2010). Noteworthy,
the related disputes are often less determined by an endeavor to find respective solutions whereas they are
to a large extent characterized by ideological buzzwords such as ‘factory farming’, ‘death of peasant farms’,
etc. There are also other, deeper problems associated with the special role of agriculture in the economic
system. Agriculture enjoys countless privileges not only in the context of agricultural policies but also in the
tax, social security and other areas of public policy. Sometimes even special legal provisions apply within
the agricultural sector, such as the demarcation for commercial livestock or the distinction between legal
forms of farming (Balmann et al., 2016).
The debate on reasonability of the privileges is particularly intensive in transition economies where agricultural
policies and the associated path dependencies lead to the development of dualistic structures of agricultural
production. For instance, in Ukraine, the Land Code of 2001 recognized private land ownership, allowed
for certain land transactions and eliminated size restrictions for rural household plots and family farms.
Nevertheless, it included a moratorium on buying and selling of land by households and family farms that has
been retained until January 2008 and then prolonged each year until present times. The Land Code also bans
the investment of agricultural land in the equity capital of newly created businesses, a precautionary measure
to counter pressure from farm managers on landowners to transfer their land to the corporate farm, thereby
losing legal rights to it. However, the Land Code does not limit the lease term and very long-term leases
lead to a de facto absorption of land in the corporate equity (OECD, 2003). As a result, huge agroholdings
emerged as an important player of the Ukrainian agricultural and land markets while small-scale subsistence
farming is also persistent and dominates several production sectors (Kataria et al., 2013; Lapa et al., 2015).
Moreover, agricultural policies that aim to facilitate farm incomes were often conducive to the development
of agroholdings. In Ukraine, debt restructuring programs, simplified and lowered taxes on agriculture and
subsidized loans for capital investment were among the main drivers of land consolidation by outside
investors (Lapa et al., 2015). Even today some of the agroholdings are among the main recipients of state
support in the form of tax exemptions2.
Another factor of the development of agroholdings is the growing global demand for food and integration
into the world markets that made agriculture a profitable business in Ukraine. In particular, this holds for
crop production (Table 2) as crop commodities exports prevail in the structure of exports and contribute to
the country’s positive agricultural trade balance (Figures 1 and 2). Large-scale private investments in crop
production thus became one of the major internal drivers of growth in Ukraine’s agriculture (Nivyevskyi
et al. 2015).
As a result of land consolidation, the number of corporate farms shrank from roughly 17,700 in 2004 to
12,887 in 2014 (State Statistics Committee of Ukraine, 2015). An increasing number of these farms are
coming under the control of agroholdings. The agroholdings’ mother companies typically have a controlling
interest in 5 to 50 individual corporate farms of about 2,000-15,000 hectares each with the total size of an
2
http://tinyurl.com/jgccb2v. It is stated that six publicly listed Ukrainian agroholdings enjoyed a $295 million tax exemption in 2014. Based on
the authors’ expert interview with the representative of Ukrainian Agribusiness Club, this made about 15% of total tax exemptions in Ukrainian
agriculture in 2014.
http://www.wageningenacademic.com/doi/pdf/10.22434/IFAMR2016.0055 - Tuesday, April 11, 2017 8:47:37 AM - Leibniz-Institut fuer Agrarentwicklung in Mittel- und Osteuropa (IAMO) / Bibliothek IP Address:192.124.243.110
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Table 2. Profitability of production in agricultural enterprises in Ukraine (%) (adapted from State Statistics
Service of Ukraine, 2015).
2010 2011 2012 2013 2014
Profitability – total 24.5 24.7 22.8 11.7 21.4
Grains 13.9 26.1 15.8 2.4 25.7
Sunflower seeds 64.7 57.0 44.9 28.2 36.7
Sugar beet 16.7 36.5 15.9 3.1 17.8
Vegetables 23.5 9.9 -0.6 7.5 15.5
Potatoes 62.1 17.7 -17.4 22.4 9.9
Fruit and berries 14.9 17.9 9.6 127.5 65.8
Grapes 91.6 57.1 71.5 99.0 57.5
Milk 17.9 18.5 1.8 13.1 11.1
Cattle -35.9 -24.8 -28.3 -41.3 -34.5
Pigs -7.8 -3.7 1.8 0.2 5.6
Sheep and goats for meat -29.5 -39.6 -32.8 -36.2 -43.0
Poultry -4.4 -16.8 -5.9 -12.6 -5.4
Eggs 18.6 38.8 47.6 58.8 60.9
Figure 1. Development of main Ukrainian agri-food exports in 2004-2015 in million USD (adapted from
United Nations Comtrade Database, 2016).
0
1000
2,000
3,000
4,000
5,000
6,000
7,000
8,000
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Meat Dairy Cereals Oilseeds Vegetable oils
Figure 2. Agricultural trade in Ukraine in 2004-2015 in billion USD (adapted from United Nations Comtrade
Database, 2016).
0
2
4
6
8
10
12
14
16
18
20
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
USD billion
Export Import Balance
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agroholding varying from 8,000 hectares to 640,000 hectares. Today 79 agroholdings farm about 6.2 million
hectares or 17% of total arable land; the largest of them, UkrLandFarming, operates about 640,000 hectares.
In 2014, agroholdings produced about 22.5% of the gross agricultural output, including 19.6% of the total
crop output and 28.1% of the total livestock output (UCAB, 2015).
Because agroholdings benefit from economies of size, they often have better access to production inputs
and external capital sources. Along with improved access to capital, listings on international stock markets
often entail revision of the existing business models by agroholdings as they have to disclose information
on governance structure, financials and organization (Chaddad, 2014; UCAB, 2012). However, the social
benefit of large-scale agricultural investments is also highly dependent on the institutional frameworks for land
use, human capital development, and implementation of production and management technologies (Petrick
et al., 2013). Particularly in transition and emerging market economies which lack reliable social security
systems and where the institutional environment is weak, the processes of corporatization and consolidation
are able to induce high social costs such as, for example, replacement of labor through mechanization. Scarce
evidence suggests that some agroholdings respond to the arising social challenges through the development
of physical and social infrastructure in rural areas (Hanf and Gagalyuk, 2009) but, generally, little empirical
research exists on these issues.
Hence, the current paper keeps its momentum, elaborating empirically on the role of corporate transparency
in the context of large publicly listed agricultural companies with operations in Ukraine. Since the first initial
public offering (IPO) that was conducted in 2005, the subsequent listings of Ukrainian agroholdings on
international equity markets were able to raise more than $6 billion of additional investments (UCAB, 2012).
In 2005-2014, 21 agroholdings with operations in Ukraine were listed on international stock exchanges.
Within this period, some of them merged while some were delisted due to poor performance. Thus, today
only 12 companies from primary agriculture of Ukraine are publicly listed (Supplementary Table S1.).
Noteworthy, no Ukrainian companies that are involved in primary agricultural production made an IPO after
2012. Since late 2013, the country risk of Ukraine was high due to a political turmoil and an ongoing military
conflict in the eastern part of the country. Accordingly, the expected pricing conditions on international equity
markets as well as the economic results of agroholdings got substantially worse. Inadequate macroeconomic
and monetary policies led to triple devaluation of the Ukrainian hryvnia against the US dollar. As a result,
the total net profit of $406.5 million that publicly listed agroholdings made in 2013 turned into the total
net loss of $767.8 in 2014 (UCAB, 2016). Total capitalization declined twofold in the same period (Figure
3). This force majeure development renders comparability of some of the current performance figures of
the listed agroholdings difficult. Therefore, further elaborations of this paper that consider capitalization,
ownership and share value of the agroholdings are based on the figures that precede the 2014 events, i.e.
lastly dated October 2013.
Figure 3. Total stock market capitalization of Ukrainian publicly listed agroholdings in million USD (adapted
from UCAB, 2015).
0
2,000
4,000
6,000
8,000
10,000
12,000
31-12-2009
30-04-2010
31-08-2010
31-12-2010
31-08-2011
30-04-2011
31-12-2011
30-04-2012
31-08-2012
31-12-2012
30-04-2013
31-08-2013
31-12-2013
30-04-2014
31-08-2014
31-12-2014
30-04-2015
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4. Case studies of Ukrainian publicly listed agroholdings
Given the limited empirical evidence about the process and outcomes of transparency management by
large agricultural enterprises in transition and emerging market economies, we use a case study approach
to develop inductively a number of implications. Where possible, we verify our case study results with the
data from agroholdings’ corporate reports, financial statements and official websites.
We draw upon case studies of the following publicly listed Ukrainian agroholdings: MHP, Agroton, IMC,
and Mriya. We select these four companies out of twelve publicly listed Ukrainian agroholdings because
they are characterized by different founder ownership structures and dynamics as well as by different
performance results (Table 3). These aspects may provide additional insights into the interrelationships
between transparency, ownership structure and performance.
Table 3. Characteristics of studied agroholdings (adapted from data of stock exchanges, corporate reports
and websites, and Ukrainian Agribusiness Club, 2016).1
MHP S.A. Agroton Public
Limited
IMC S.A. Mriya Agro Holding
Public Limited
Date of IPO May 2008 November 2010 May 2011 July 2008
Corporate governance
Registered office Luxembourg City,
Luxembourg
Nicosia, Cyprus Luxembourg City,
Luxembourg
Nicosia, Cyprus
Stock market London Stock
Exchange
Warsaw Stock
Exchange
Warsaw Stock
Exchange
Frankfurt Stock
Exchange (delisted in
2014)
Total number of board members 6 5 5 8
Total number of independent directors 3 2 2 2
Number of foreign independent directors 3 0 2 2
Investor relations and ownership
Financial statements reporting Quarterly Semi-annual Quarterly Semi-annual
Independent auditor Deloitte KPMG (replaced
Baker Tilly in
2012)
Baker Tilly KPMG (replaced
E&Y in 2015)
Number of investment analysts 14 4 6 n.a.
Free float as of IPO date (%) 22.3 42.4 24.0 20.0
Free float as of October 2013 (%) 52.0 44.6 26.3 20.0
Performance
Capital raised through IPO ($ million) 161.3 54.4 24.4 90.0
Capitalization three months after IPO ($
million)
1,745.7 312.8 101.0 388.4
Capitalization as of October 2013 ($
million)
2,496.2 16.9 147.4 667.6
Share price three months after IPO ($) 15.8 41.0 9.2 3.7
Share price as of October 2013 ($) 15.7 0.8 4.7 6.3
Net profit three months after IPO ($
million)
14.9 -18.9 14.8 75.0
Net profit as of October 2013 ($ million) 162.0 -5.7 25.8 88.5
Operations
Land use as of IPO (thousand ha) 200 151 39 150
Land use as of October 2013 (thousand ha) 360 151 137 295
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MHP S.A.
The public joint stock company MHP (stands for ‘Myronivskyi Khliboprodukt’ which means ‘Bakery
products from Myronivka’ in Ukrainian) was founded in 1998 by Mr. Yuriy Kosyuk who is also the Chief
Executive Officer (CEO) and the major shareholder of MHP. The company is a strictly vertically integrated
agroholding with main facilities located in Central Ukraine. The total farmland in use is about 360,000 ha
although MHP is primarily specialized in chicken production. Its share in total chicken meat production
in Ukraine accounts for about 55%. MHP has developed and owns a range of branded semi-processed and
processed poultry products. Other operations involve grain and oilseed production, storage and trade, cattle
breeding, meat processing, fodder production, and fruit production.
In 2008, MHP was listed on London Stock Exchange through an IPO in Global Depositary Receipts (GDRs)
and attracted $161.25 million of outside capital. Free float amounted to 9.70% of the company’s issued ordinary
share capital. Since then, the company has increased free float up to 51.95% through additional allotments.
The attracted funds were mainly used for expansion of the poultry business segment. MHP invested in the
construction of a large poultry complex with the total annual capacity of 566.6 thousand tons of chicken
meat in Vinnytsya region of Ukraine.
Corporate governance transparency
Given MHP’s involvement in international equity markets and a high degree of dependence on foreign
investors, the company’s corporate governance is designed in the way to address the expected agency costs
between shareholders and corporate managers. The board of directors is rather diverse. Along with the
company’s three top managers who are also shareholders of MHP, the board additionally consists of three
non-executive directors who participate in the company’s audit and remuneration committees. All three non-
executive directors are foreign citizens and represent the agribusiness, commercial banking and investment
sectors. MHP formally complies with Ten Principles of Corporate Governance approved by the Luxembourg
Stock Exchange and voluntary corporate governance regime stated in the UK Corporate Governance Code.
The company holds annual general meetings every year in April and publishes articles of association on its
MHP S.A. Agroton Public
Limited
IMC S.A. Mriya Agro Holding
Public Limited
Specialization Poultry meat;
poultry meat and
beef products and
semi-products
Oilseed and grain
production and
storage
Oilseed and grain
production and
storage
Grain and oilseed
production and
storage; sugar beet
production
Vertical integration and other production Oilseed and grain
production and
storage; milk
production; fruit
production; biogas
production
Milk production;
bakery products
Milk production;
potato production
Sugar production;
seed production;
potato production
CSR
Main CSR areas Community
development,
animal welfare,
employees,
environment
n.a. Community
development,
employees
Community
development,
employees
1 IPO = initial public offering; CSR = corporate social responsibility; n.a. = not available.
Table 3. Continued.
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website. The main aspects of the company’s corporate governance policy are described in the Corporate
Governance Charter approved by the board of directors.
Ownership, share and financial transparency
The IPO prospectus of MHP is publicly available on the company’s website whereas the results and structure
of the offering are described both in the 2008 financial report and on the history page of the company’s
website. MHP also publishes interim (quarterly) and annual corporate reports on its website. The reports
contain information about the board of directors, audit and remuneration committees, top management
compensation, ownership structure, share value, holding structure, financial results of the holding in general
and each particular business segment in particular. Each of the reports is announced in a respective press
release. The MHP website also provides a daily update of the company’s share and bond information. Along
with presentations for investors, MHP informs its shareholders about annual meetings and other corporate
events through its financial calendar which is also available on the company’s website. 14 investment analysts
from both international and Ukrainian investment banks cover the company’s operations.
Corporate social responsibility transparency
MHP discloses its CSR policy on the corporate webpage. This policy captures a number of activities in the
areas of human capital development, animal welfare, environmental protection, sustainable development, and
biosecurity. Although all of these areas are considered important, the company’s managers emphasize that the
main driver of CSR is the necessity to maintain the commitment of landowners. Given that farmland sales
are prohibited in Ukraine, land lease is the only way to access land. Long-term investments of businesses in
the leased-in farmland are thus insecure due to a threat that a significant number of lessors/landowners may
get better lease price offers for their land plots from competing agroholdings. Therefore, the development
of the landowners’ communities and binding the landowners is supporting the long-term interests of the
company. For this matter, MHP has established a specific management position on landowner relations and
founded a special social center designed as a separate NGO that addresses the needs of the communities
in MHP’s business locations. The social center provides new equipment to schools and hospitals, makes
donations to churches, invests in reconstruction of rural roads and realizes a number of other social projects.
Best communication practices
Communication practices of MHP are designed in the way to maintain interactions with a broad range of
stakeholders. MHP publishes annually its stakeholder engagement plan for an upcoming year. The company
has established a unified department of public relations and social responsibility which signifies the importance
of external communication of CSR. MHP is also involved in government relations through membership
to several business associations in Ukraine. In order to interact with its customers, MHP maintains special
websites for each of its branded products. The company’s suppliers are also informed about fodder quality
and purchase requirements on a separate webpage. Communication with investors is supported through
the investor relations webpage that offers the possibility of conference calls. This webpage also provides
personal contact details of the investment relations officer as well as a feedback form, website search and
site map. Information on the webpage is presented in three languages while all corporate documents are
downloadable in PDF format.
Summary on MHP S.A.
MHP is one of the most successful agroholdings in Ukraine. Executing a vertically integrated business model
in the region with fertile black soils, it demonstrates high performance on international equity markets and is
effective in diverting outside capital into expansion of its businesses. The company’s corporate governance and
broad analyst coverage effectively preclude agency problems although its founder acts as a CEO and chairman
of the board at the same time. MHP’s corporate communications address its stakeholders comprehensively.
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Information for investors is regularly updated whereas CSR programs are locally implemented in rural
communities and communicated to a broader audience.
Agroton Public Limited
Agroton is a diversified vertically integrated agricultural producer in Eastern Ukraine. The company’s core
business is production, storage and processing of sunflower seeds and wheat. In addition, the company
is engaged in livestock production. In 2001-2009, Agroton tripled its harvested area from initial 41,000
hectares to almost 140,000 hectares. Today Agroton harvests about 151,000 hectares of ‘black soil’ arable
land, operates storage facilities with a throughput capacity of 285,000 tons per year, and produces and sells
high quality cattle.
The company was founded by Mr. Iurii Zhuravlov who is also the CEO of Agroton. In 2009, Agroton was
listed in GDRs on the Open Market of the Frankfurt Stock Exchange (representing almost 25% of Agroton’s
share capital) to finance further business growth. The company conducted IPO and has been listed on
Warsaw Stock exchange since late 2010. However, in 2013, Agroton announced technical default on its
bond obligations due to the crisis in the Bank of Cyprus where the company decided to keep the most part of
its operating capital. This immediately led to a considerable drop of the company’s share price and ratings.
Corporate governance transparency
Since Agroton is incorporated in Cyprus, it has to comply with Cypriot law, as well as with provisions
relating to corporate governance issues in in the company’s Articles of Association and the Companies
Law. However, the company is not subject to the requirements of any national corporate governance rules,
including the Cypriot Code on Corporate Governance, as it is not listed in Cyprus. The company’s board of
directors consists of three top managers who are also shareholders of the company (including Mr. Zhuravlov
as a chairman of the board) and two independent, non-executive directors who participate in the audit and
remuneration committees. The non-executive directors are Ukrainian citizens with marginal linkages to
international stock markets. One of them is the former deputy minister of agriculture whereas the other one
is the top manager of the state-owned railway company.
Ownership, share and financial transparency
Agroton regularly publishes interim (semi-annual) and annual financial reports. Its annual reports contain the
reports of the board of directors and independent auditor, information on financial positions, cash flows and
changes in equity. Agroton’s ownership structure is disclosed both in the annual report and on the corporate
webpage. The annual report does not cover the results of the company’s particular business segments but
these results are described in presentations for investors. The prospectus and the offering structure are
available on the company’s investor relations webpage while share information is regularly updated on the
homepage. Personal contacts of the Agroton’s investment relations officer are also accessible on the investor
relations webpage. At the same time, the company’s information about annual meetings often appears on the
corporate website with larger delays. The operations of Agroton are followed by four investment analysts
from both international and Ukrainian investment agencies.
Corporate social responsibility transparency
Agroton generally expresses little commitment and pays little attention to disclosure of its CSR activities.
Moreover, the company is criticized by local authorities for refusal to implement a diversified business
model that would include a broader range of livestock products and create additional jobs. Another point of
criticism is a strong focus of Agroton on production of sunflower that exhausts soil fertility if cultivated for
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several consecutive years in violation of the scientifically grounded crop rotation schemes3. The company
thus often fails to address some important external pressures such as human capital development and
environmental sustainability. At the same time, Agroton’s CSR activities are only visible through sporadic
local mass media reports.
Best communication practices.
For the most part, the Agroton’s corporate website comprehensively addresses its investors and creditors
while the information that might be considered interesting to other stakeholders applies only to the carriers’
webpage. The corporate website provides information in four languages, website search, and all corporate
documents downloadable in PDF format. The possibility to arrange a conference call or leave any feedback
information is missing.
Summary on Agroton Public Limited
Despite being accurate in addressing investors’ information needs, Agroton demonstrates poor results with
regard to both stock market performance and transparency. The company’s technical default on financial
obligations is exacerbated by insecurity arising from criticism of local authorities. One reason behind these
problems is lack of capability to address relevant stakeholder groups that takes its roots in a low diversity
of the board resources. The fact that the same person is simultaneously a founder, CEO and chairman of the
board is not uncommon but corporate governance rules provide mechanisms that help bring other people
with novel and valuable views to the board. However, the Agroton’s board of directors is rather undiversified
with its independent directors being rather inside and having minor linkages to both rural community and
international equity markets. Uniformity of board perspectives, coupled with a relatively high portion of
shares in free float, causes high uncertainty for investors and affects credit ratings and financial performance.
It also precludes an adequate feedback to environmental pressure and recognition of the importance of
(disclosure on) CSR.
IMC S.A.
IMC (Industrial Milk Company) was founded in 2007 by Mr. Oleksandr Petrov who is the chairman of
the board and the main shareholder of IMC (68.66% of shares). 5.05% of the company’s share capital is
owned by other investors while 26.29% is in free float. IMC is specialized in grain and oilseed production,
storage and sales as well as in milk production. The total farmland in use is 136,700 hectares and the storage
capacity accounts for 554,000 tons. In 2014, the company produced 22,500 thousand tons of milk. With these
indicators IMC is among the top 10 Ukrainian agroholdings in terms of size. The main operation facilities
of the company are located in Central and Northern Ukraine.
In May 2011, IMC raised $24.4 million through an IPO on Warsaw Stock Exchange. The additionally raised
funds were directed to expand the company’s operations in terms of land use and grain storage. By the end
of 2011, IMC established the third production cluster in the Sumy region after acquisition of 6 farms and
the grain and oilseeds silo with the storage capacity of 34,000 tons.
Corporate governance transparency
IMC adheres to the Corporate Governance Rules of Warsaw Stock Exchange but, as a Luxembourg registered
holding that is not listed on a stock exchange in Luxembourg, the company is not required to adhere to the
Luxembourg corporate governance principles. The role of Mr. Petrov as the chairman of the board is supervisory
whereas the company is managed by a hired CEO. Potential agency problems between shareholders and top
managers are addressed through membership of two non-executive directors to the board. They lead the audit
3 http://tinyurl.com/hho7b8j.
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and remuneration committees of IMC. Both are foreign citizens and have a background in a Germany-based
research institute and Poland-based investment agency.
Ownership, share and financial transparency
IMC regularly publishes interim (quarterly) and annual corporate reports and supplements them with press
releases. Share information and presentations for investors are regularly updated on the company’s website.
IMC informs its investors and shareholders about corporate events through its financial calendar which is
available on the company’s website. Six analysts from international and Ukrainian investment banks follow
the operations of IMC. Inside information is obtainable through the company’s investor relations officer
whose contacts are accessible through the webpage. The IMC’s webpage also contains its IPO prospectus
and the offering structure; information about owners and shareholders is presented on the website as well as
in the annual report. Along with the shareholder structure, the annual report discloses statements of the board
of directors, financial position and cash flow of the holding. The results of particular business segments are
described in presentations for investors.
Corporate social responsibility transparency
IMC expresses commitment to CSR and implements its social program ‘IMC. Aid to People’ aiming to develop
social infrastructure in the regions of its operations. The company reports about its CSR activities on the
corporate website. These activities are implemented both ad hoc and within a range of support mechanisms
developed in terms of the company’s social program. Single actions such as medical treatment support
to rural individuals are combined with an ongoing sponsoring of schools and kindergartens, provision of
villages with electricity and water supplies. Local community development is the primary dimension of the
company’s CSR. The IMC managers are also members to the social committee of the business association
‘Ukrainian Agribusiness Club’ where relevant problems of rural areas are discussed with other agroholdings.
Best communication practices
Apart from reports, investor presentations, CSR programs and membership to business associations, IMC
interacts with investors and public by means of its website. The company’s website contains information in
four languages, website search, quick links and downloadable PDF-documents. At the same time, feedback
forms and the possibility of direct conference calls are missing.
Summary on IMC S.A.
Despite a relatively small share of capital in free float, IMC continues to be transparent to both the investors
and general public. Partial separation of ownership and control and presence of two foreign independent
directors are likely to contribute to this result. The company’s management recognizes the importance of
CSR for business survival whereas accuracy of financial and corporate reporting can be associated with
sound stock market performance.
Mriya Agro Holding Public Limited
In August 2014, one of the largest Ukrainian agroholdings Mriya reported its failure to make bonds interest
payments and was delisted from the Frankfurt Stock Exchange (FSE). The company’s debt amounted to
$1.28 billion at that time. In January 2015, the name of Mykola Huta, the co-owner of the defaulted Mriya,
was placed on the Interpol’s list while the Ministry of Interior of Ukraine sought him for defrauding of over
$100 million from foreign investment funds4.
4 http://bankwatch.org/node/11360.
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The story of this downfall is astonishing in the view of the fact that Mriya was a showcase of a family-
owned business that became one of the largest agroholdings in Ukraine. Mriya was founded by the parents
of Mykola Huta in 1992. From owning 50 hectares of arable land in 1992, Mriya grew to operate 320,000
hectares in six regions of Western Ukraine. In 2008-2014, the company was listed on the FSE with 20%
of share capital being in free float. The company’s capitalization reached $1.1 billion at its peak in 2010.
Since 2010, the World Bank Group’s International Finance Corporation has provided Mriya with three loans
amounting to $175 million that helped Mriya finance the commodities, land lease rights, storage capacities,
and working capital. The European Bank for Reconstruction and Development (EBRD) supported Mriya’s
pre-harvest and post-harvest production with a $24.1 million loan. Additionally, export credit agencies such
as the Export-Import Bank of the United States and Danish EFK have provided credit and guarantees for
Mriya to purchase machinery and equipment from the US and Danish companies5.
In pre-default times, the Mriya’s board of directors consisted of eight persons. Four of them were the Huta
family members while the rest included two inside directors and two outside members to the board. The
outside, non-executive directors had their backgrounds in the EBRD and international asset management
agency, thus possessing strong connections with the international equity markets.
Along with business expansion and borrowing activity, Mriya invested in the development of rural areas and
human capital. The company founded the first Ukrainian private school in agronomy where the post-graduates
of agricultural universities improved their qualification in seed production, crop physiology, phytopathology,
agricultural machinery and production technologies
6
. In cooperation with the Kyiv School of Economics and
the Lviv Business School, the company launched an agricultural master of business administration program
named ‘Mriya Leaders Academy’7.
After the default announcement, control over the company’s assets was transferred to its creditors – primarily
European and American investors – who decided to preserve the agroholding and appoint a completely new
crisis management team. Since then, the company closed most of its financial information for some time.
Only presentations for creditors with the updates on business optimization were made public. In 2015, the
company started to disclose its semiannual and annual financial statements again. The new management team
also reported that Mriya continues its CSR programs such as support to rural schools, churches and hospitals.
Today Mriya operates approximately 180,000 hectares of farmland and is specialized in sugar beet, wheat,
potatoes, rapeseed, corn and soybeans. The company has its own seed production, agricultural and logistics
equipment, silo complexes, granaries and potato storage facilities.
Summary on Mriya Agro Holding Public Limited
Mriya represents a striking example of how opportunism in top management can obviate advantages of
the international listing, hamper the company’s reputation and deinstall effective feedback mechanisms.
Ineffective corporate governance and entwinement of ownership and control enabled cross-holdings and
underreporting and finally led to the technical default and delisting.
The main results of the presented case studies are summarized in Table 4 and discussed in the subsequent
section.
5 http://tinyurl.com/zxjz5ml.
6 http://tinyurl.com/z32zepn.
7 http://tinyurl.com/gr3ue58.
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5. Discussion and conclusions
This paper suggests that it is crucial to view the concept of corporate transparency holistically by considering
the needs of both the investors and general public for firm-specific information. While prior research has
mainly addressed different aspects of corporate transparency separately (Botosan, 1997; Bushman et al.,
2004; Russo and Fauts, 1997), our results demonstrate that an integrated approach toward this issue may
have a number of important implications for agroholdings and their non-owner investors.
For investors, the detailed information about the large corporate farms that operate in transition or emerging
market economies is important due to a high level of uncertainty associated or even complicit with weak
governance regimes in those economies. The investors also need to decide under which conditions it is safe
to invest into an industry characterized by severe exposure to societal pressures and imperfect conditions
in factor markets.
A showcase for a positive investment decision would be an agroholding that demonstrates best communication
practices and comprehensively discloses information on its corporate governance, ownership, share
performance, financial results and social responsibility. Disclosure on most of these information aspects is
Table 4. Summary of case studies.1
MHP S.A. Agroton Public
Limited
IMC S.A. Mriya Agro Holding
Public Limited
Corporate transparency
Corporate governance
disclosure
High High High High
Investor, share and
financial disclosure
High High High High after IPO
Low after default
CSR disclosure High Low High High after IPO
Moderate after default
Adherence to best
communication practices
High Low Moderate High after IPO
Low after default
Performance and operations
Stock performance Stable Declined
significantly
Declined Increased after IPO
Delisted after default
Net profit Increased Net loss decreased Increased Increased after IPO
Net loss after default
Land use Increased Stable Increased Increased after IPO
Declined after default
Transparency-related characteristics
Free float High
Increased
significantly after
IPO
High
Increased slightly
after IPO
Low
Increased slightly
after IPO
Constantly low
Delisted after default
Number of investment
analysts
High Low Low n.a.
Board diversity High Low High Low
Crisis management
after default
Product differentiation/
vertical integration
High Moderate Low Moderate
1 IPO = initial public offering; CSR = corporate social responsibility; n.a. = not available.
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mandatory for publicly listed companies incorporated under the laws of developed economies. Ukrainian
publicly listed agroholdings make no exception in this respect as their head offices are located in the EU
countries. These agroholdings exhibit accuracy in presenting the most important pieces of investor information
and are efficient in the use of modern communication technologies. However, irrespectively of the scope of
mandatorily disclosed facts and figures, information may often be distorted or even false. This holds even if
the firm characteristics that allegedly contribute to higher corporate transparency are in place. Institutional
ownership and stock price performance (Healy and Palepu, 2001) are good signs of a transparent agroholding,
but, as exemplified by Agroton and especially Mriya, these characteristics are not decisive when the need
to prevent top management’s opportunistic behavior arises.
Our findings suggest that the effective board diversity has to be achieved in order to preclude opportunism
of an agroholding’s top managers that act simultaneously as members to the agroholding’s board. Following
the logic of Bushman et al. (2004), we maintain that the significance of governance-related transparency in
explaining the investor decisions is high. However, wide representation of a ‘stronger’ governance regime, i.e.
presence of a number of international directors on an agroholding’s board, is a positive signal that reinforces
reliability of the declared high level of transparency.
To this effect, our results suggest that some closely held agroholdings, especially those that have developed
from small family farm businesses, may exhibit a higher penchant for opportunism than do companies with
more widespread ownership. This happens because closely held firms fail to recognize that an international
listing implies strategic change for them, requiring adaptive actions such as expansion of the circle of
individuals involved in decision-making and monitoring (Brunninge et al., 2007). To fully appreciate this
point, recall Mriya where a half of the board members were founder family members whereas a high level of
disclosure to both the investors and general public was not yet indicative of the company’s creditworthiness.
For agroholdings, an integrated approach toward corporate transparency is important because it is conducive
to preserving access to international equity markets as a source of additional capital on the one hand. On
the other hand, the holistic view on transparency is even more viable in transition and emerging market
economies where it is likely to help publicly listed companies to reduce uncertainty that arises from existing
path dependencies and imperfect factor markets.
The examples of MHP and IMC give evidence that highly transparent agroholdings are more likely to
attain stable stock performance even during crisis times. Fulfillment of investor requirements, compliance
with corporate governance rules and best communication practices are generally likely to contribute to the
improved competitive position of an agroholding. However, the real-world pursuit of competitive advantage
by agroholdings takes place in the context of transition and emerging market economies. In these economies,
existing rules and regulations are often lagging behind not only those applicable to internationally listed
companies but also those necessary to alleviate the effects of disruptive agricultural technologies.
Their enormous size and improved access to capital notwithstanding, agroholdings are part of the process
neatly captured by Willard Cochrane’s agricultural treadmill (Cochrane, 1958). According to this concept,
aggravation of farming’s terms of trade as well as growing farmland prices compel agricultural producers to
constantly introduce new technologies in order to survive rather than to be profitable in a long run. Inducing
high social costs discernible in the declining numbers of farmers and absentee land ownership, this process
particularly proliferates in the situation when most farmers are renting their land (Levins and Cochrane, 1996).
In Ukraine, where most farmland is being rented by agricultural enterprises, one of the effects of Cochrane’s
treadmill is a growing societal pressure on agroholdings evidenced by an ongoing political debate on the
possibility to increase farmland rent prices and agricultural taxes. This way CSR of agroholdings gains
in importance because care of local communities helps to achieve landowners’ and employees’ loyalty
and relieve pressure from the society. CSR of agroholdings is thus essentially instrumental and serves as
a license to operate in an opportunistically disposed environment. However, the remaining pressure from
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local authorities, NGOs, and national and international media underscores the role of CSR disclosure that
was stressed by organizational theorists some time ago (Branco and Rodrigues, 2006; Teece et al., 1997).
Our findings suggest, in turn, that CSR transparency is important not only for highly product-differentiated
firms that are generally expected to be more transparent (e.g. Nehrt, 1996) but also for the commodity-
specialized companies that compete primarily on the basis of price and are thus exposed to the agricultural
treadmill’s effects.
Overall, our results provide empirical evidence that the concept of corporate transparency captures the
ostensibly non-concurrent postulates of transaction cost economics, agency theory, business ethics and
competitive advantage theories. In other words, corporate transparency is an instrument that helps firms
to solve information and agency problems, obtain environmental justice and gain competitive advantage
simultaneously. Firms that strive to capitalize on higher transparency would be compelled to adhere to
best practices that are synonymously envisaged by different literature streams. These firms would need to
implement stakeholder management (Jones, 1995), move away from compliance models to strategic models
of environmental management (Miles and Covin, 2000) or engage into strategic philanthropy instead of
cause-related marketing (Porter and Kramer, 2002).
In conclusion, we argue that a significant (positive) side-effect of the agroholdings’ listings in international
financial markets is that they are forced to be transparent with respect to their activities as well as results.
As farming is particularly controversial nowadays, this higher transparency may contribute to more public
trust whereas agroholdings may benefit substantially in the long run if they provide more evidence that they
contribute positively to social responsibility and rural development.
Supplementary material
Supplementary material can be found online at https://doi.org/10.22434/IFAMR2016.0055.
Table S1. Characteristics of Ukrainian publicly listed agroholdings.
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... Souza-Monteiro et al. (2017) demonstrated that CSR strategies are pertinent in ensuring company goodwill and reputation in the UK retail industry. Similarly, Gagalyuk (2017) illustrated that CSR transparency can be utilised as a tool to enhance the corporate reputation of agricultural firms in Ukraine. In Taiwan, CSR practice appears to help fast-food restaurants in building a good image and corporate reputation. ...
... Marketing capability contributes to increasing corporate reputation and therefore, company competitiveness and customer perception about a company's CSR practices can boost this relationship. Whilst previous studies suggest that CSR practices lead to corporate reputation (den Hond et al., 2014;Gagalyuk, 2017), this relationship may not be linear. On the one hand, food companies may not be able to enhance their reputation through CSR practice if the customers are not aware of these exercises. ...
... Some studies have demonstrated that CSR practice leads to a firm's corporate reputation (Brammer & Pavelin, 2016;Gagalyuk, 2017;de Vass Gunawardena et al., 2018;Kwon & Lee, 2019;Park, 2019). The finding suggested that the responding firms realise the benefits of CSR practice in enhancing their corporate image. ...
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This study expanded on the existing research on corporate social responsibility (CSR) in food supply chains by investigating the moderating effect of marketing capability on the relationship between CSR practice and corporate reputation in the context of Malaysian small medium enterprises (SMEs). Data were collected from 264 SMEs operating in the Malaysian food supply chain using a questionnaire and analysed using Partial Least Square (PLS). The objectives of this study are as follows: 1) to investigate the awareness of CSR and the trends among local food SMEs, 2) to analyse the factors that motivate SMEs to implement CSR, and 3) to examine the moderating effect of marketing capability on the relationship between CSR practice and corporate reputation. This study found that supply chain partners’ pressure and government support were the antecedent factors for CSR practice. In addition, this study also highlighted that CSR practice enhances the responding firms’ corporate reputation. However, this study did not find substantial evidence to support the moderating role of marketing capability. The implication of this study implies that food operators should respond to the rising importance of CSR practice due to their powerful influence on a company's reputation. They should enter a collaborative relationship with their supply chain partners to gain access to resources needed for CSR implementation.
... On the one hand, this activity requires agroholdings to increasingly disclose their financial ownership and, since recently, CSR information in accordance with the requirements of international stock markets (UCAB, 2012). On the other hand, the scope of CSR information voluntarily disclosed by agroholdings often tends to be broader than that required by markets and society and includes reporting on agroholdings' community development initiatives, employee relations, infrastructural projects and environmental performance (Gagalyuk, 2017). ...
... On reflection, these developments call for an extension of the existing, but still very limited, CSR disclosure studies in the agribusiness research. In particular, the strategic legitimacy-centered view of higher CSR disclosure driven by international listings (Gagalyuk, 2017) and by the stakeholder perspective (Gagalyuk et al., 2018;Jauernig and Valentinov, 2019) should be extended by the notion that corporate disclosure may pursue certain higher-order objectives. Given the existing market imperfections and highly nontransparent business environments of transition economies (Durnev et al., 2009;Keyzer et al., 2013), one such objective may be the establishment of functioning market-based institutions that generate benefits for firms. ...
... However, surprisingly enough, this distinction has rarely been addressed in studies on CSR (disclosure) in agribusiness. Instead, the research on CSR and CSR disclosure in agribusiness is dominated by the strategic legitimacy perspective (Gagalyuk, 2017;Luhmann and Theuvsen, 2016). The present paper partly addresses this gap by employing the institutional approach to CSR disclosure alongside the strategic approach. ...
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Large firms operating in underdeveloped institutional environments of transition economies tend to invest in seemingly unrewarded corporate social responsibility (CSR) initiatives. To explain this phenomenon, we extend the literature on the motives behind CSR disclosure in agribusiness from the institutional perspective on organizational legitimacy. The thesis is that self-interest rationales for CSR disclosure, as advocated by the strategic-legitimacy perspective, fall short of explaining the full scope of instrumental motivations for the proactive and excessive transparency initiatives of agribusiness companies. Using the example of internationally listed Ukrainian agroholdings, we show that firms faced with institutions that do not appropriately support access to market transactions not only adapt to fluctuations in the business environment but also proactively address key institutional bottlenecks by engaging in higher transparency and nonmarket initiatives. The case study analysis of the voluntary CSR disclosure of four agroholdings is conducted based on in-depth interviews with corporate managers and complemented with information from corporate reports and websites. This analysis offers insights into the development of corporate farming and its economic and social repercussions in Ukraine and, more generally, expanding the concept of CSR itself.
... Stock markets are either volatile or poorly functioning, while commercial banks provide loans under very restrictive refinance rates (Gagalyuk and Valentinov, 2019). Large-scale agroholdings are generally able to overcome these difficulties by attracting outside investors, listings on international stock exchanges and lending from international financial institutions (IFIs), such as the International Finance Corporation (IFC) and European Bank for Reconstruction and Development (EBRD) (Gagalyuk, 2017;Petrick et al., 2013). Moreover, to receive loans from renowned lenders such as IFC and EBRD, agroholdings have to comply with the IFIs' extensive requirements for corporate conduct, which have been shown to stimulate agroholdings' commitment to CSR (Gagalyuk and Valentinov, 2019). ...
... Economies of size likely decrease the cost of CSR activities for larger farms (Ho and Taylor, 2007). Larger companies are also more visible and are subject to greater pressures from the general public to improve their societal and environmental impacts (Bavorová et al., 2021;Gagalyuk, 2017). ...
... In their social responsibility activity, individual and corporate enterprises may differ due to the effects of diverse stakeholders and regulatory environments that shape the adoption of CSR practices. In particular, corporate enterprises may face greater challenges than individual enterprises due to a broader set of pressures pertaining to both general public and private investor interests (Gagalyuk, 2017;Panwar et al., 2014). However, the CSR of individual enterprises in the primary agriculture sector has been considerably understudied compared to the widely reported CSR of agroholdings. ...
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Building on the institutional theory of corporate social responsibility (CSR) and research on CSR in the agriculture of post-Soviet transition economies, the present paper investigates the institutional, organizational and individual factors of farm engagement in CSR activities. Based on a survey of 800 farms in Russia and Kazakhstan, the interaction between the farms’ social role and multilevel institutional characteristics is addressed. We observe notable positive effects of local labor sourcing, insecure land use conditions and farm size (in terms of land area) on farms’ CSR engagement. Individually owned farms, as opposed to corporate farms, tend to be more CSR affine. In addition, we find weak statistical evidence of CSR engagement among the farms affiliated with agroholdings. We discuss the results in the context of different levels of CSR analysis.
... The development of so-called agroholdings in the agricultural sector of post-Soviet transition economies is a well-documented fact (Epstein et al., 2013;Gagalyuk, 2017;Rylko and Jolly, 2005;Serova, 2007). The term 'agroholding' appeared in the mid-2000s to designate a new type of large-scale farming operator that emerged and rapidly evolved in post-Soviet transition countries such as Kazakhstan, Russia and Ukraine. ...
... The rapid expansion of agroholdings largely came about through quick acquisitions of other standalone farms (Matyukha et al., 2015), while this process of farm takeovers itself became possible due to favorable access to outside capital facilitated by the extensive economic and political ties of agroholdings (Petrick et al., 2013;Visser et al., 2012;Wandel, 2011). In turn, larger sizes and the ability to benefit from economies of size were found to improve agroholdings' access to external sources of capital and, thus, to reinforce agroholdings' growth through acquisitions and investments in technologies (Gagalyuk, 2017). The concentration of market power and access to land were named as additional drivers of the farm acquisitions made by these large farming entities Lapa et al., 2015). ...
... Agroholdings have developed through takeovers of standalone farms in both Russia and Ukraine (Gagalyuk, 2017;Matyukha et al., 2015). However, the establishment and proliferation of agroholdings took slightly different paths in the two countries. ...
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This article provides pioneering empirical evidence on the selection of acquisition targets by agroholdings in transition economies. We use panel data from Ukraine and Northwest Russia covering the years 2005-2016. Binomial logistic regression models were estimated to analyze the impacts of farm capital strength, financial performance and size on the farm’s likelihood of being acquired by an agroholding. Our results indicate that agroholding target selection considerations tend to change over time and have shifted from farm size to farm performance in both countries. However, agroholdings in both countries prefer to ‘grab lemons’, i.e. acquire poorly performing farms, but they differ with respect to target selection criteria. Agroholdings in Northwest Russia tend to focus on farm profitability, while their Ukrainian counterparts emphasize the capital structure of the target farms.
... We further review some of these capabilities. (GAGALYUK, 2017). Diverse boards of directors, independent auditing and disclosure of information about owners and financials serve as safeguards for publicly listed agroholdings against opaque business practices typical of a transition economy. ...
... For example, agroholdings face high uncertainty regarding security of land-based investments. Due to the long-lasting moratorium on land sales, agroholdings predominantly operate on leased land and are under a constant threat of losing it if, e.g., a significant number of lessors / landowners withdraws from lease contracts for some reason (GAGALYUK, 2017). Another serious threat is the exodus of qualified employees from rural areas due to poor living conditions . ...
Article
Over the past decades, Ukraine has built an increasingly dynamic agricultural sector, characterized by growing export engagement in various commodities. Whether the country can quickly regain its status of a key player on the world agri-food markets amid and after Russian invasion is extremely important for international food security. However, the to-date understanding of the recovery potential remains elusive due to the lack of systematic and objective insights into the major drivers of recent growth. Scarce evidence suggests that Ukraine’s agriculture has been successfully modernized mainly due to the efforts of private sector actors operating in the context of generally inconsequent policies typical of a transition country. The following factors have been reported to contribute to recent modernization and development of the sector: a) improvement of efficiency and productivity, especially in crop production; b) structural change involving a rapid development of large-scale agroholdings; and c) relatively positive public acceptance of modern technologies and organizational forms of agricultural production. The present paper reviews these trends in greater detail by addressing the role of professional farm management, digital technologies, ongoing optimization of the size of production operations (including horizontal and vertical integration through merger and acquisitions) as well as farm engagement in sustainability and legitimation activities as the main enterprise-level drivers of growth and resilience in Ukrainian agriculture.
... The study found that CSR strategies are very important for a company to improve corporate reputation. Gagalyuk (2017) had performed a research on the impact of CSR transparency of agro companies in Ukraine. The result revealed that CSR transparency can be used to gain competitive advantage and increase corporate reputation especially in the long run. ...
... The finding of this study is also congruent with several studies (Iguchi et al., 2021;Mazereeuw et al., 2014;Tahir et al., 2015) who revealed that managers perceived religiosity and CSR practices are an important part of business. Some studies have demonstrated that CSR practice lead to a firm's corporate reputation (Bahta et al., 2021;Chef et al., 2021;Diogo & Neil, 2017;Gagalyuk, 2017). The finding suggests that the responding firms realise the benefits of CSR practice in enhancing their corporate image. ...
... 'Mega-farms' 1 are relatively few, but they account for an increasing share of the agricultural land base and farming output of the province. While there is an emerging literature on mega-farms (Hermans et al. 2017), most studies have focused on regions such as Australia (Plunkett et al. 2017), South America (Chaddad and Valentinov 2017;Senesi et al. 2017), and Eastern Europe (Deininger et al. 2013;Gagalyuk 2017;Visser et al. 2013;Kuns et al. 2016). Very little is known about the structure, organization, and evolution of mega-farms in the North American context. ...
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Full-text available
Unequal access to land, driven by decades of consolidation and concentration, is of increasing concern around the globe. This article analyzes growing farm consolidation and land concentration in the province of Saskatchewan, considered Canada’s agricultural powerhouse. Drawing on Land Titles data and Census of Agriculture statistics, we document trends associated with a changing farm structure such as increasingly large land holdings, growing ownership concentration, and the emergence of a class of mega-farms. The largest farms, many of which have roots in family enterprise, are becoming increasingly complex in their organizational form and in their relationships to farmland, rented and owned. Our qualitative analysis allows us to provide an ‘on the ground’ view of these trends, including the multiple social and environmental changes wrought by on-going consolidation. We argue that these trends are contributing to a homogenization, flattening, and emptying out of Saskatchewan rural landscapes. Furthermore, we document increasing competitive pressures and land market dynamics that will likely continue to exacerbate land inequality and impede the entry of new farmers. Our research underlines the importance of new, more sophisticated ways of conceptualizing the family farm and its evolution from ‘farm to firm’.
... The economies of size of agroholdings and their affiliation to a holding company serve as a valuable collateral base, which not only eases access to external financing, but it also provides an opportunity to secure better financing conditions (i.e. lower interest rates on bank loans) (Rada et al. 2017;Gagalyuk 2017). Thus, it might well be the case that, overall, banks prefer agroholdings to stand-alone enterprises. ...
Article
Full-text available
The Russian agri-food sector illustrated remarkable progress over the last decade. Still, the Russian government is striving to boost production even further and has set a number of goals for the industry for the coming years. Agroholdings are believed to be the main engine not only behind the success of the industry in recent years, but they are also expected to play a key role in moving the sector towards the set targets. In spite of their increasing role, the literature on agroholdings is still in its infancy and it fails to provide a clear answer on whether they represent a more efficient form of agri-food production. To fill this gap in the literature, we utilise a manually collected panel data set of 203 corporate Russian agri-food enterprises for the years between 2012 and 2017 and provide new empirical evidence on the effects of agroholding affiliation on firms’ financial performance, measured in terms of returns on assets and sales. The results of the random effects model indicate a significant positive impact of agroholding affiliation on financial performance. Further analysis reveals that this positive effect might be attributed to agroholding affiliates’ better access to capital, efficient management and stimulating executive compensation systems. The paper provides empirical recommendations for policy makers and corporate executives involved in the Russian agri-food industry.
... Earlier research focusing on CEE countries suggests that CSR establishes because of its value-enhancing capabilities (Elms, 2006;Gagalyuk, 2017). There still is, however, the need to complete the view of CSR antecedents with the institutional perspective. ...
Article
We examine the drivers of corporate social responsibility anchoring in Poland, a country that has undergone a profound transition from a command economy to a free market system. We use a fine‐grained theoretical framework to understand the influence of the interactions between regulative, normative, and cultural‐cognitive aspects of institutions with firm organizational factors on the diffusion of corporate social responsibility. We show that, in Poland, companies use their slack resources to adopt corporate social responsibility only when facing strong normative or regulative institutional pressures in their organizational fields. When such pressures are absent, companies prefer value‐enhancing functions of their resources other than investing in corporate social responsibility. We propose a multilevel approach for studying drivers of corporate social responsibility and show how the importance of organizational‐level drivers emerges clearly only if the interactions with institutional‐level features are considered. The main policy implication of our study is that corporate social responsibility may establish in Poland, as well as in other Eastern Europe countries, provided that designed and formalized institutional processes reach relevant organizational fields. Furthermore, we find that, for business managers, employing financial slack for social responsibility projects may be perceived as institutionally legitimate or not depending on the type of institutional pressures prevailing in each organizational field.
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