Does Privatization Reform Alleviate Ownership Discrimination? Evidence from the Split-share Structure Reform in China

50 Pages Posted: 6 Aug 2016 Last revised: 15 Mar 2017

See all articles by Jinyu Liu

Jinyu Liu

University of International Business and Economics (UIBE) - School of Banking and Finance

Zhengwei Wang

Tsinghua University - PBC School of Finance

Zhu Wuxiang

Tsinghua University - School of Economics & Management

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Date Written: March 14, 2017

Abstract

We study the existence of financing discrimination between state-owned and non-state owned enterprises from the perspective of investment-cash flow sensitivity, and the effects of privatization reform on muffling the institutionally-rooted discrimination. Hit by negative cash flow shocks, firms either reduce investment or raise capital. A firm has no choice but to reduce investment if it cannot raise capital, giving rise to investment-cash flow sensitivity. By employing the dynamic multi-equation model, we find that State-owned Enterprises (SOEs) exhibit significantly lower investment-cash flow sensitivity than that of non-State-owned Enterprises (non-SOEs), suggesting their privileged accessibility to the financial market when cash flow plummets and thereby their stronger capability to protect investment opportunities against cash flow fluctuations. The evidence of firms’ financing behaviors illustrated in the multi-equation model further confirms the existence of ownership discrimination. Moreover, we find that the difference in investment-cash flow sensitivities between SOEs and non-SOEs declined sharply after the Split-share Structure Reform in China, shedding light on the positive impacts of the reform in alleviating ownership discrimination and improving credit allocation efficiency of the capital market.

Keywords: Ownership, Financing discrimination, Investment-cash flow sensitivity, Split-share Structure Reform

JEL Classification: G32, P22, D90

Suggested Citation

Liu, Jinyu and Wang, Zhengwei and Wuxiang, Zhu, Does Privatization Reform Alleviate Ownership Discrimination? Evidence from the Split-share Structure Reform in China (March 14, 2017). Available at SSRN: https://ssrn.com/abstract=2819074 or http://dx.doi.org/10.2139/ssrn.2819074

Jinyu Liu (Contact Author)

University of International Business and Economics (UIBE) - School of Banking and Finance ( email )

No.10, Huixindong Street, Chaoyang District
Beijing, 100029
China
+8613720001753 (Phone)

HOME PAGE: http://sbf.uibe.edu.cn/szdw/xyjs/zc/57847.htm

Zhengwei Wang

Tsinghua University - PBC School of Finance ( email )

No. 43, Chengfu Road
Haidian District
Beijing 100083
China

Zhu Wuxiang

Tsinghua University - School of Economics & Management ( email )

Beijing, 100084
China

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