Profiting from Government Stakes in a Command Economy: Evidence from Chinese Asset Sales

28 Pages Posted: 8 Feb 2008 Last revised: 22 Aug 2010

See all articles by Charles W. Calomiris

Charles W. Calomiris

Columbia University - Columbia Business School; National Bureau of Economic Research (NBER)

Raymond J. Fisman

National Bureau of Economic Research (NBER); Boston University

Yongxiang Wang

University of Southern California - Marshall School of Business

Date Written: February 2008

Abstract

We document the market response to an unexpected announcement of proposed sales of government-owned shares in China. In contrast to the "privatization premium" found in earlier work, we find a negative effect of government ownership on returns at the announcement date and a symmetric positive effect in response to the announced cancellation of the government sell-off. We argue that this results from the absence of a Chinese political transition to accompany economic reforms, so that the positive effects on profits of political ties through government ownership outweigh the potential efficiency costs of government shareholdings. Companies with former government officials in management have positive abnormal returns, suggesting that personal ties can substitute for the benefits of government ownership. The "privatization discount" is higher for firms located in Special Economic Zones, where local government discretionary authority is highest. This is consistent with the view that firms in these locations are more dependent on government connections. We also find that companies with relatively high welfare payments to employees, which presumably would fall with privatization, benefit disproportionately from the privatization announcement.

Suggested Citation

Calomiris, Charles W. and Fisman, Raymond and Wang, Yongxiang, Profiting from Government Stakes in a Command Economy: Evidence from Chinese Asset Sales (February 2008). NBER Working Paper No. w13774. Available at SSRN: https://ssrn.com/abstract=1091409

Charles W. Calomiris (Contact Author)

Columbia University - Columbia Business School ( email )

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National Bureau of Economic Research (NBER)

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Raymond Fisman

National Bureau of Economic Research (NBER)

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Boston University ( email )

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Yongxiang Wang

University of Southern California - Marshall School of Business ( email )

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