Change of Control and the Success of China's Share Issue Privatization

Abstract:     
Using two newly available datasets of listed firms covering the period from 1994 to 2003, we test if share-issue privatization, defined here as the change of corporate control from the State to private owners rather than the IPO event as in earlier studies, improved firm performance in China. To illustrate how privatization may have worked, we develop a sequential model of interaction between the government and firm managers in which optimal ownership shares emerge in equilibrium. Our econometric analysis then shows that, in keeping with the model, privatization did improve firm profitability and the productivity of labor.

Number of Pages in PDF File: 35

Keywords: state owned enterprises, profitability, event study

JEL Classification: G1, G3

working papers series