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

44 Pages Posted: 19 Aug 2014 Last revised: 10 Feb 2015

See all articles by Yongxian Tan

Yongxian Tan

University of Otago

Xuan Tian

Tsinghua University - PBC School of Finance

Xinde Zhang

Our Lady of the Lake University; Our Lady of the Lake University

Hailong Zhao

Southwestern University of Finance and Economics

Multiple version iconThere are 2 versions of this paper

Date Written: February 6, 2015

Abstract

We examine the real effect of privatization in terms of technological innovation. To establish causality, 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, causal effect on firm innovation. We further show that better interest alignments between controlling and minority shareholders, enhanced stock price informativeness, and improved risk sharing are three plausible underlying mechanisms through which privatization prospects promote innovation. Our paper sheds new light on the real effect of privatization prospects and has important implications for policymakers who aim to promote innovation.

Keywords: Privatization, innovation, interest alignments, price informativeness, risk sharing

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 (February 6, 2015). Kelley School of Business Research Paper No. 2014-33. Available at SSRN: https://ssrn.com/abstract=2481838 or http://dx.doi.org/10.2139/ssrn.2481838

Yongxian Tan

University of Otago ( email )

P.O. Box 56
Dunedin, Otago 9010
New Zealand

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)

Our Lady of the Lake University ( email )

411 S.W. 24th Street
San Antonio, TX 78207
United States

Our Lady of the Lake University ( email )

411 S.W. 24th Street
San Antonio, TX 78207
United States

Hailong Zhao

Southwestern University of Finance and Economics ( email )

55 Guanghuacun St,
Chengdu, Sichuan 610074
China

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