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

68 Pages Posted: 20 Mar 2017 Last revised: 2 Sep 2019

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: July 25, 2019

Abstract

This paper investigates the institutional origins of ownership discrimination in bank lending through a staggered quasi-natural experiment: China’s Split-share Structure Reform. State-Owned Enterprises (SOEs) have an advantage over non-SOEs in securing external financing to protect investment opportunities from cash flow fluctuations. This financing privilege declined significantly after the reform, which converted SOEs’ non-tradable state-owned shares to tradable shares, sharply increasing the probability of privatization. The effects were more pronounced among SOEs under higher threats of privatization (e.g., firms with larger increases in tradable shares, smaller workforce, in industries peripheral to national strategy, etc.). We find that banks proactively prefer SOEs for the perceived safety of loans under implicit government guarantee; when this privilege disappeared after the reform, banks react by allocating credits more fairly. This paper provides concrete evidence on the bright side of privatization reforms in mitigating credit misallocation, and enlightens policy makers to practical resolutions to the financing inefficiency in emerging capital markets.

Keywords: Ownership discrimination; Privatization; 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 (July 25, 2019). Available at SSRN: https://ssrn.com/abstract=2932877 or http://dx.doi.org/10.2139/ssrn.2932877

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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