The Real Effects of Privatization: Evidence from China’s Split Share Structure Reform

43 Pages Posted: 10 May 2014 Last revised: 28 Sep 2015

Yongxian Tan

Shanghai University of Finance and Economics - Department of Finance

Xuan Tian

Tsinghua University - PBC School of Finance

Xinde Zhang

Shanghai University of Finance and Economics - School of Finance

Hailong Zhao

Shanghai University of Finance and Economics - School of Accountancy

Multiple version iconThere are 2 versions of this paper

Date Written: September 16, 2015

Abstract

We examine the real effect of privatization in terms of technological innovation. To address endogeneity concerns, we explore plausibly exogenous variation in privatization generated by a quasi-natural experiment, China’s split share structure reform, which mandatorily converts non tradable shares to be freely tradable and opens up the gate to the privatization of state-owned enterprises (SOEs). Using a difference-in-differences approach, we find that the expectation of privatization has a positive effect on firm innovation. We further show that better interest alignments between controlling and minority shareholders and enhanced stock price informativeness are two plausible underlying mechanisms through which privatization prospects promote innovation. Our paper sheds new light on the real effect of privatization and has important implications for policymakers who aim to promote technological innovation.

Keywords: Privatization, innovation, interest alignments, stock price informativeness

JEL Classification: G30; G38; O32; L33

Suggested Citation

Tan, Yongxian and Tian, Xuan and Zhang, Xinde and Zhao, Hailong, The Real Effects of Privatization: Evidence from China’s Split Share Structure Reform (September 16, 2015). Kelley School of Business Research Paper No. 15-23. Available at SSRN: https://ssrn.com/abstract=2433824 or http://dx.doi.org/10.2139/ssrn.2433824

Yongxian Tan

Shanghai University of Finance and Economics - Department of Finance ( email )

Shanghai, 200433
China

Xuan Tian

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China
+86-10-62794103 (Phone)

HOME PAGE: http://xuantian.info/

Xinde Zhang (Contact Author)

Shanghai University of Finance and Economics - School of Finance ( email )

777 Guoding Road
Shanghai 200433, Shanghai 200433
China

Hailong Zhao

Shanghai University of Finance and Economics - School of Accountancy ( email )

No. 777 Guoding Road, Shanghai
Shanghai, 200433
China

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