Analyzing the efficiency of capital markets is a useful exercise for any country, as a well-functioning capital market can contribute significantly to better resource mobilization and ultimately to a better growth performance. The Czech Republic implemented major reforms in the early 1990s and achieved impressive economic results. However, macroeconomic performance started faltering in 1996. Although the reforms contributed to the Czech economy's early successes, the regulatory framework for enterprises and financial institutions contained several flaws that limited the potential gains from privatization and reduced the overall efficiency of the economy. The weak protection of minority shareholder rights and the absence of other important elements of internal governance proved to be another important obstacle to sound management and active restructuring. Weaknesses in the external mechanisms of governance also opened room for abuse by large shareholders and managers. This report makes a detailed assessment of the regulatory and institutional framework in the major sectors of the Czech capital market, identifies the deficiencies that still remain, and provides recommendations for further improvements.